You Win Some, You Lose Some

Posted on September 22, 2023 by Barry Zalma

Statute of Limitations Bars Bad Faith Claim

See the full video at https://rumble.com/v3japk2-you-win-some-you-lose-some.html and at https://youtu.be/awbewsSCtZM

Loann T. Phan-Kramer and Jonerik Kramer sued American States Insurance Company for underinsured motorist coverage, won, and collected. Then, they sued American States again asserting statutory bad faith, breach of contract/good faith and fair dealing, and loss of consortium.

In Loann T. Phan-Kramer and Jonerik Kramer v. American States Insurance Company, No. 2:23-cv-01867-JDW, United States District Court, E.D. Pennsylvania (September 14, 2023) the USDC took away part of plaintiffs claim and allowed the rest to proceed in a Solomon like decision.

BACKGROUND FACTS

On April 15, 2016, an underinsured motorist rear-ended Loann T. Phan-Kramer. She suffered a full thickness tear of her rotator cuff, as well as other neck and back injuries. At the time of the accident, American States Insurance Company insured Ms. Phan-Kramer, including underinsured motorist (“UIM”) benefits. After suing then settling with the other driver, Plaintiffs filed their UIM insurance claim with American States. American States denied that claim and Plaintiffs sued. At trial, the jury returned a verdict in Plaintiffs’ favor and the insurer satisfied the verdict.

DISCUSSION

The Tort of Bad Faith

The statute of limitations bars Plaintiffs’ claim. The statute of limitations on a bad faith claim is two years in Pennsylvania. The statute begins to run when the insurer first refuses to pay the claim. When the court denied Plaintiffs’ motion for leave to file a second amended complaint, the court concluded that the statute of limitations began to run on June 28, 2019, when American States denied their claim. Plaintiffs’ time to file this claim expired on June 28, 2021. Therefore, American States’s Motion on the bad faith claim was granted because it was barred by the statute of limitations.

Breach of Contract/Loss of Consortium

The Third Circuit has adopted a bright-line rule that res judicata cannot bar claims that are predicated on events that postdate the filing of the initial complaint. Because Plaintiffs’ breach of contract and loss consortium claims both rely (at least in part) on American States’s conduct following the filing of the initial lawsuit, res judicata cannot preclude these claims.

American States acknowledged that the Amended Complaint “focus[es] . . . on the ways that American States supposedly acted in bad faith during the litigation and trial of the underlying UIM/consortium case.”

Because the bright-line rule bars the application of res judicata, American States’s Motion on the breach of contract and loss of consortium claims was denied.

ZALMA OPINION

Insurance companies, like every person and corporation, are imperfect. American States decided it did not owe UIM benefits to its insured, took the issue to trial and lost. It paid the judgment only to be sued for defending the original suit. The court found that the insured/plaintiffs filed their bad faith claim too late and dismissed that action only to allow the breach of contract and loss of consortium claims to proceed. The decision is a Pyrrhic victory for the plaintiffs since they already recovered in the initial suit the contract damages.

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No Duty to Accept Offer Five Times Policy Limit

Posted on September 21, 2023 by Barry Zalma

Insurer Not Obligated to Commit Insurance Claims Suicide

See the full video at https://rumble.com/v3j1uly-no-duty-to-accept-offer-five-times-policy-limit.html and at https://youtu.be/nFFOZfKYZUM

Benjamin D. Markuson, Erik Saterbo, and Stephen Saterbo v. State Farm Mutual Automobile Insurance Company, an Illinois corporation; Crawford Law Group, P.A., a Florida corporation; and Larry Walker, No. 2D21-2443, Florida Court of Appeals, Second District (September 15, 2023)

Benjamin Markuson and Erik and Stephen Saterbo appealed the of summary judgment based upon the trial court’s conclusion that State Farm was under no legal duty to its insured to accept any or all of the three proposals for settlement made by Mr. Markuson.

FACTUAL BACKGROUND

The underlying case arises from a 2006 automobile accident involving Erik Saterbo and Mr. Markuson. At the time of the accident, Erik was operating a vehicle owned by his father, Stephen. Due to his injuries, Mr. Markuson sued the Saterbo. The Saterbos had an insurance policy with State Farm which provided policy limits of $300,000.00 against liability for bodily injuries sustained in an auto accident. And on January 15, 2009, State Farm authorized the Crawford Law Group, P.A.-the firm retained by State Farm to defend the Saterbos-to make a settlement offer to Mr. Markuson to resolve his case for the policy limits. The offer was not accepted.

Instead, in 2011 and 2012, Mr. Markuson issued two settlement offers to State Farm’s insureds (the first, oral; the second, written) that were largely indistinguishable in their terms. In pertinent part, Mr. Markuson’s offer would have required State Farm to (1) tender the $300,000.00 policy limits to Mr. Markuson; (2) authorize State Farm’s insureds to enter into a consent judgment in the amount of $1.9 million that would not be recorded or enforced against the Saterbos; and (3) authorize the Saterbos to assign their rights in any claims against their insurance agent. In return, Mr. Markuson would execute a release of all his claims against the Saterbos and a satisfaction of the aforementioned consent judgment. The proposal made no indication that State Farm would be released from any bad faith liability. State Farm declined to accept these proposals, and the case continued to trial. Following a jury trial, Mr. Markuson recovered a total of $3,084,074.00, a sum considerably greater than the coverage afforded.

The settlement offers by Mr. Markuson formed the basis of a bad faith complaint against State Farm where Markuson and the Saterbos sued with a seven count complaint against State Farm, Crawford Law Group, P.A., and Larry Walker-State Farm’s agent. The alleged bad faith occurred when State Farm failed to settle the personal injury action by declining three of Mr. Markuson’s proposals for settlement.

The trial court concluded that State Farm had no duty to enter into a consent judgment that was in excess of the policy limits “as a matter of law.” The trial court found that “each of the three proposals exposed State Farm to extracontractual claims or payment” and that nothing suggested State Farm would be released by entering into the proposed consent judgments. It further found that State Farm never withdrew its offer of the policy limits. Thus, the trial court determined that “State Farm did not act in bad faith when it did not agree to or negotiate with respect to any of the three proposals.”

DISCUSSION

Here, the thrust of the bad faith case turns on State Farm’s refusal to enter into an agreement-that is, State Farm, in the plaintiffs’ view, had a duty to authorize its insureds to consent to a judgment more than five times the amount of the policy limit (thereby expediting the availability of a bad faith claim) and to do so without releasing State Farm from liability. Florida law is clear that an insurer has no duty to enter into such an agreement. There is no duty because entering into a consent judgment, for purposes of expediting bad faith litigation, is indeed the ‘functional equivalent’ of an excess judgment. The obligation to negotiate and settle claims on behalf of its insured is defined by and bounded within the insurance contract itself; an insurer does not ordinarily have a duty to pay a claim in excess of a policy’s limit.

CONCLUSION

The Florida Court of Appeals concluded that, as a matter of law, the trial court correctly determined that State Farm had no duty to enter such an agreement. Thus, where there was no duty to accept the proposals, declining the proposals could not serve as the basis of the bad faith claim. The circuit court erred by entering a final judgment in favor of State Farm to the extent the plaintiffs’ claims raised other theories of bad faith and remanded the case to trial on the other issues.

ZALMA OPINION

Liability insurance is a means of protecting against the risk of loss for accidentally injuring a third person up to the limits of the policy. Insurers have no obligation to expose themselves to an excess verdict and the court of appeals concluded that State Farm had no duty because entering into a consent judgment, for purposes of expediting bad faith litigation, would force the insurer to pay an excess judgment when its only contractual obligation was to defend its insured and, if there is a judgement, to pay the full limit of liability. To accept the offer that the plaintiff suggested as evidence of bad faith would be to commit financial suicide and violate the clear terms of its policy.

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Imperfect Investigation Not Bad Faith

Posted on September 20, 2023 by Barry Zalma

Insurer that Pays Limit of Policy After Appraisal Did not Breach The Covenant of Good Faith & Fair Dealing

See the full video at https://rumble.com/v3j0y7w-imperfect-investigation-not-bad-faith.html and at https://youtu.be/t0r1XMNjzbk

Washington Street, LLC (“Washington Street”) appealed a District Court order granting summary judgment to Nationwide Property and Casualty Insurance Company (“Nationwide”), which ended Washington Street’s claims that Nationwide proceeded in bad faith in delaying claim payments following a fire that damaged Washington Street’s property.

In Washington Street, LLC v. Nationwide Property & Casualty Insurance Company, No. 22-3396, United States Court of Appeals, Third Circuit (September 13, 2023) the Third Circuit resolved the dispute.

BACKGROUND

In July 2019, a fire caused by a tenant’s negligence destroyed an apartment building owned by Washington Street. Washington Street promptly submitted a claim for recovery to its insurer, Nationwide. Some six weeks later, in September 2019, Nationwide provided an initial claim estimate and payment, after Washington Street’s attorney complained about the pace of the investigation.

That initial payment ($376,342.95) was, as Nationwide acknowledged, incomplete, as it was subject to change based on additional repairs or damage found. In October 2019, Washington Street provided estimates for repairs not covered in Nationwide’s initial report. Nationwide reviewed those estimates and hired a consultant to review the entire project. The consultant completed his assessment in January 2020, estimating the total cost of repairs to be $635,898.86, after which Nationwide paid an additional $208,555.91, an amount the parties accepted as bringing the total payments to $584,907.68.

Washington Street was dissatisfied with that amount and demanded an impartial appraisal of the total loss. Nationwide cooperated by hiring an appraiser. Washington Street also hired an appraiser, and the two appraisers appointed an “umpire” to resolve any disagreements. In November 2020, the umpire entered an award for Washington Street: $859,670.03 for dwelling loss, $7,720.05 for business personal property, $35,306.40 for debris removal, and $74,200 for loss of income. The total amount exceeded Washington Street’s policy limit of $854,700 for dwelling loss, $60,000 for business income, and $25,000 for debris removal, and Nationwide paid the full policy amount.

During the appraisal, on June 3, 2020, Nationwide filed a subrogation lawsuit against the tenant who had negligently caused the fire. The subrogation investigation began in July 2019, but Nationwide did not inform Washington Street of the lawsuit until January 14, 2021. Eventually, Nationwide obtained a settlement that resulted in Washington Street receiving an additional $15,000, an amount Washington Street described as “fair and acceptable.”

Washington Street sued. After discovery, Nationwide moved for summary judgment and the District Court granted it. The Court held that Nationwide’s handling of Washington Street’s claim was “by no means a model of perfection” but it did not constitute bad faith.

DISCUSSION

Washington Street claims that Nationwide demonstrated bad faith by delaying six weeks to make its first partial payout, failing to make further estimates until Washington Street pressed for progress, hiring a building consultant for the alleged purpose of further delaying the process, making a still-deficient payment six months after the fire, knowingly misrepresenting its appraisal policy, delaying its policy reformation request, and filing its subrogation action prematurely.

Pennsylvania provides a statutory remedy if an insurer acts in bad faith toward the insured. Bad faith requires evidence so clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about whether or not the defendants acted in bad faith. At the summary judgment stage, the insured’s burden in opposing a summary judgment motion brought by the insurer is commensurately high because the court must view the evidence presented in light of the substantive evidentiary burden at trial.

Nationwide promptly investigated Washington Street’s claim, and its claims specialist visited the burned building soon after the site was deemed safe.

So too, Nationwide’s delay of six weeks in providing the first payment appears reasonable. On August 26, 2019, the claims specialist wrote, the fact is it is a large building and although I have spent days estimating, it has been a slow process. Nationwide’s first payment included a detailed estimate of property damage that was admittedly underinclusive and left the door open for Washington Street to submit further estimates once repairs got underway. Washington Street did not initiate any repairs, however.

The District Court noted, “Nationwide probably could have been more diligent,” but that doesn’t mean that Nationwide’s pace of review was unreasonable, much less that it showed disregard for Washington Street’s contractual rights.

Therefore, Washington Street did not show by clear and convincing evidence – the applicable standard of proof – that Nationwide acted in bad faith in processing Washington Street’s insurance claim.

ZALMA OPINION

The tort of bad faith requires a breach of contract by an insurer that provides clear, direct, weighty and convincing evidence sufficient to enable a clear conviction, without hesitation that the insurer acted in bad faith. The evidence did not exist to establish the required clear and convincing evidence of wrong doing it only reflected a claim that took time and expertise to resolve.

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Parties to Insurance Contract Alone Can Commit Bad Faith

Posted on September 19, 2023 by Barry Zalma

Attorneys May Not Be Sued for the Tort of Bad Faith

See the full video at https://rumble.com/v3iqnfa-parties-to-insurance-contract-alone-can-commit-bad-faith.html and at https://youtu.be/Jm4XOLoXs6w

For many years lawyers for policyholders have sued insurer’s lawyers for the tort of bad faith to avoid federal court. I was sued dozens of times in spurious lawsuits claiming that drafting a denial letter was sufficient to sue me personally as the lawyer for an insurer for the tort of bad faith. In so doing the suits almost invariably drove a conflict between the lawyer and his or her client although the lawyer was not a party to the contract of insurance.

The California Supreme Court resolved the issue in a case called Jerome Gruenberg v. Aetna Insurance Company et al., 9 Cal.3d 566, 510 P.2d 1032, 108 Cal.Rptr. 480, Supreme Court of California, In Bank. (June 11, 1973.)

FACTS

Gruenberg sued his insurers and their lawyers for the tort of bad faith after his claim for fire damage to his bar, the Brass Rail, was damaged by fire. The insurers engaged the services of defendant P. E. Brown and Company (Brown). Carl Busching, a claims adjuster employed by Brown, went to the Brass Rail to investigate the fire and inspect the premises. While he was there, he stated to an arson investigator of the Los Angeles Fire Department that plaintiff had excessive coverage under his fire insurance policies. Eventually the premises were locked, and nothing was removed until November 14, 1969, when Busching authorized the removal of the rubble and debris.

Gruenberg was eventually charged in a felony complaint with the crimes of arson (Pen.Code, § 448a) and defrauding an insurer (Pen.Code, § 548).

Defendant insurance companies also retained attorney Donald Ricketts who demanded in writing that plaintiff appear on December 12, 1969, to submit to an examination under oath and to produce certain documents. On November 26, 1969, plaintiff’s attorney responded by letter to Ricketts explaining that he had advised plaintiff not to make any statements concerning the fire loss while criminal charges were pending. The letter also requested that the insurers waive the requirement of an examination until the criminal charges lodged against plaintiff were concluded. Ricketts refused the request and warned that failure to appear for the examination would void coverage under the policies. Gruenberg did not appear and Rickets, on behalf of the insurers denied the claim.

The charge against Gruenberg were dismissed by the magistrate for lack of probable cause.

DISCUSSION

The Supreme Court only ruled on the sufficiency of these allegations which of course must be sustained by proper proof.

Plaintiff alleged that Brown, the insurance adjusting firm, and its employee, Busching, and Cummins, the law firm, and its employee, Ricketts, were the agents and employees of defendant insurers and of each other and were acting within the scope of that agency and employment when they committed the acts attributed to them. Gruenberg contended that these non-insurer defendants breached only the duty of good faith and fair dealing.

The Supreme Court concluded that the non-insurer defendants were not parties to the agreements for insurance; therefore, they are not, as such, subject to an implied duty of good faith and fair dealing. Moreover, as agents and employees of the defendant insurers, they cannot be held accountable on a theory of conspiracy.

Plaintiff sufficiently pleaded a cause of action against the insurers for breach of the covenant. However, since the remaining defendants were not subject to the implied duty arising from the contractual relationship, the complaint does not state sufficient facts to constitute a cause of action against them and that the judgment of dismissal in their favor was proper.

ZALMA OPINION

The tort of bad faith is a mix of contract and tort. One cannot commit the tort unless that person or entity is a party to the contract of insurance. Therefore, the lawyers and adjusters were dismissed since they were charged with a tort they could not commit. I personally was sued multiple times as the lawyer for an insurer who denied a claim only to defeat those suits with a motion for summary judgment and a declaration that “I am not now, nor have I ever been, an insurer.” I then, in an attempt to stop spurious lawsuits, sued the lawyers who filed suits against me for malicious prosecution. I would recommend the same to any lawyer sued for bad faith, a tort that an insurer’s lawyer cannot commit.

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Do the Tort – Pay the Damages

Posted on September 18, 2023 by Barry Zalma

No Indemnity for City’s Sole Negligence

See the full video at https://rumble.com/v3hwhvg-do-the-tort-pay-the-damages.html and at https://youtu.be/JILfZvk_xUo

The City of Kansas City sought contractual indemnity against Occupational Health Centers of the Southwest, P.C. doing business as Concentra Medical Centers in the Circuit Court of Jackson County only to be refused by the trial court.

In City Of Kansas City, Missouri v. Occupational Health Centers Of The Southwest, P.C., d/b/a Concentra Medical Centers, No. WD85602, Court of Appeals of Missouri, Western District, Third Division (September 12, 2023) the City’s indemnity claim sought to shift to Concentra the costs associated with an employment discrimination claim which had been asserted against the City. The circuit court granted summary judgment to Concentra, and the City appealed.

FACTUAL BACKGROUND

In 2012, the City and Concentra executed Contract No. EV1227, for the performance of drug and alcohol testing on City employees. The City sent Shahidah Hazziez, a City employee, to a Concentra facility for a purportedly random drug screening. Hazziez later contended that she and other Muslim City employees had been disproportionately selected for such drug testing.

Concentra notified the City that Hazziez had refused to provide a compliant urine sample and had claimed that it was due to a bladder infection. After Hazziez was fired she sued the City, as well as a number of Concentra-affiliated entities and employees.

Hazziez settled her claims against the Concentra defendants. Thereafter a jury trial began against the City and defendants other than the City settled. After an eight-day trial, Hazziez asked the jury for damages because the City had discriminated against her. The only adverse employment action Hazziez identified was the termination of her employment with the City. The jury found in Hazziez’s favor and against the City on Hazziez’s claims for discrimination based on sex and a perceived disability. The jury awarded her compensatory damages of $172,000.00 but found that the City was not liable for punitive damages. The court subsequently awarded Hazziez attorney’s fees in the amount of $303,660.00, and costs of $10,130.85.

The Court of Appeal affirmed the judgment on appeal and also awarded Hazziez her attorney’s fees on appeal. On remand the circuit court determined that Hazziez’s reasonable appeal-related fees and expenses were $88,896.00. The City satisfied the judgment in November 2020.

The City filed a third-party petition against Concentra for indemnification under Concentra’s contract for drug and alcohol testing services. The circuit court entered its judgment on July 29, 2022, granting Concentra’s motion for summary judgment and denying the City’s cross-motion. Ultimately, the circuit court concluded that Hazziez’s claims against the City were not based in whole or in part on Concentra’s actions, but that the City’s liability to Hazziez was based on its own actions, for which Concentra had no indemnification obligation.

DISCUSSION

The Court of Appeal focused on the plain and ordinary meaning of the contract itself and did not look to extrinsic evidence unless the terms of the contract were ambiguous.

The City was held liable for its own actions. The claims for which the City was held liable did not arise out of or result from acts or omissions caused in whole or in part by Concentra.

Concentra was required to indemnify the City for liability arising from Concentra’s actions, but not liability resulting from the City’s own conduct. Because the City’s liability to Hazziez arose solely from its own actions, not in whole or in part from Concentra’s actions, the circuit court properly granted summary judgment to Concentra on the City’s contractual indemnity claim.

ZALMA OPINION

Insurance is designed to protect an insured for damages resulting from its negligence. Indemnity agreements, like that in the City’s contract with Concentra, is designed only to provide indemnity if the City was held liable for the actions of Concentra, the indemnitor. Since only the acts of the City caused damage to Hazziez it had no right to indemnity from Concentra and could only be indemnified by its own insurance.

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Lies on Application & Insurance Never Existed

Posted on September 15, 2023 by Barry Zalma

Rescission Results in Policy Void From its Inception

ARSON FOR PROFIT IS A VIOLENT CRIME

See the full video at https://rumble.com/v3hnld2-lies-on-application-and-insurance-never-existed.html and at https://youtu.be/JKk6qpQ0zP0

Imperial Casualty and Lloyd’s Underwriters retained me in the 1980’s to advise concerning the fire claim presented by Levon Sogomonian and his wife as a result of a major arson fire and explosion that destroyed their home. The investigation took more than a year, multiple days of examination under oath (EUO), death threats to the claims investigator and a bomb threat at my office, that eventually established the leading case in California concerning rescission of insurance.

In Imperial Casualty And Indemnity, Company v. Levon Sogomonian and Elichka Sogomonian, No. B022012, 243 Cal.Rptr. 639, 198 Cal.App.3d 169, Court of Appeal, California (Feb. 4, 1988) Levon and Elichka Sogomonian (defendants) appealed from a summary judgment entered in favor of plaintiff Imperial Casualty Insurance Company (herein “Imperial”) on both Imperial’s complaint and defendants’ cross-complaint.

FACTUAL BACKGROUND

On July 14, 1982, Imperial issued a homeowner’s policy to defendants which provided casualty and fire insurance protection for defendants’ home. On or about October 9, 1982, defendants’ home was destroyed by a fire and explosion. A second fire on October 10, 1982 a second arson fire destroyed what had not been destroyed by the first fire.

Following an investigation, Imperial concluded that certain misrepresentations and a number of omissions had been made by the defendants in their application for the policy which they had submitted to Imperial on June 7, 1982. Imperial sued, seeking: Rescission of the policy ab initio, together with the judgment of the court so declaring; and repayment, with interest, of advance payments (against the then anticipated fire insurance proceeds) of $30,300 which Imperial made to the defendants on or about November 18, 1982.

In its motion for summary judgment Imperial produced evidence that the defendants, in responding to questions in the policy application, (1) specifically denied (for the immediately preceding three years) any loss history and any policy cancellations or renewal refusals and (2) failed to include the following facts:

That in February of 1980 (within three years of their application to Imperial) defendants suffered landslide damages to their property which resulted in a legal action for $500,000 in damages filed against them by a downhill neighbor. This claim was submitted by the defendants to their then insurance carrier, Equitable General Insurance Company;
That in early 1981 defendants suffered an uninsured loss by theft of precious stones exceeding $100,000 in value;
That on December 12, 1981, Underwriters Insurance Company had cancelled a homeowner’s policy which it had previously issued on the same property here involved;
That on March 29, 1982, defendants had presented a water damage claim to Blue Ridge Insurance Company with respect to this same property;
That, on April 5, 1982, over two months prior to the submission of the application to Imperial, the defendants had been notified by Blue Ridge Insurance Company of the non-renewal of the homeowner’s insurance policy which that company had theretofore issued. Subsequently, on July 19, 1982, just a few days after the issuance of Imperial’s policy, defendants were informed that the reason for such non-renewal was substandard property maintenance by defendants of the same property here involved. Defendants did not ever provide such information to Imperial;
That at the time of the application, there was pending a lawsuit with Equitable Life Assurance Society, wherein that company sought to rescind a health policy on the grounds that defendants had made material misrepresentations and omissions in the application for that policy;
That at the time the application was made to Imperial defendants had a second mortgage on their property with Alliance Bank (the existence of a first mortgage with American Savings & Loan Association was disclosed; however, the total owed on the home was approximately $425,000 of which nearly one-half, or $200,000, was secured by the undisclosed second trust deed).

Imperial offered the deposition testimony of its former underwriter who was responsible for making the decision to issue the subject policy. She testified that she relied on defendants’ application and had she known the “true facts” she would not have approved the issuance of the policy.

DISCUSSION

In their brief, defendants effectively conceded that of the established material issues of fact claimed by Imperial, they only really disputed three.

Given the state of this record and defendants’ concession in their brief, the Court of Appeal was compelled to the conclusion that no factual dispute exists with respect to the fact of defendants’ concealment of certain information requested by Imperial. Moreover, there is no factual dispute that Imperial issued the policy in reliance on the truth of the statements made by the defendants and that Imperial’s underwriter has stated that had Imperial known the actual facts, which only came to light during the post fire investigation, it would not have issued the policy.

The Court of Appeal concluded that the application submitted by the defendants to the information sought by Imperial and denied to it by the false negative answers and omissions of defendants were material to Imperial’s decision to provide insurance coverage. That conclusion is the only one that reasonably can be drawn from the undisputed evidence presented.

Rescission of The Policy of Insurance Bars Any Claim By the Insured Under Insurance Code Section 790.03(h).

“A contract is extinguished by rescission.” (Civil Code § 1688.) The consequence of rescission is not only the termination of further liability, but also the restoration of the parties to their former positions by requiring each to return whatever consideration has been received.

DISPOSITION

Since the summary judgment did not provide a complete restitution to Imperial and Lloyd’s, the judgment was reversed, with directions to the trial court to make and enter a new order granting summary adjudication of issues which is consistent herewith. A trial was held thereafter and I testified as a fact and expert witness only to have Mr. Sogomonian threaten my life as I entered the courtroom to testify. Judgment was had in favor of Imperial and Lloyd’s and they recovered all advance payments, attorneys and investigation fees.

ZALMA OPINION

Importantly this case established the law of the state of California with regard to rescission of insurance. Although there was evidence that the fire was created on behalf of Mr. Sogomonian no criminal charges were brought and Sogomonian continued to attempt to gain from the fire by suing the investigator. In 15 years of work all litigation was resolved, Sogomonian paid, and went on to litigate with others on various other schemes. Contrary to his hopes I survived and am now 81-years-old and still working.

If you want the full details of this case see my book “Arson for Terrorism and Profit” a fictionalized novel about arson for profit here.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Zalma’s Insurance Fraud Letter – September 15, 2023

Posted on September 15, 2023 by Barry Zalma

ZIFL Volume 27, Number 18

This, the eighteenth issue of the 27th year of publication Zalma’s Insurance Fraud Letter provides multiple articles on how to deal with insurance fraud in the United States.

See the full video at https://rumble.com/v3hpyjg-httpsyoutu.be5nfmopephju.html and at https://youtu.be/5NfmopEPhjU

Subscribe to Zalma’s Insurance Fraud Letter Where You Can be Notified About the two Issues a Month

The Source for Insurance Fraud Professional Where You Can Read:

Public Adjuster Andrew Mitchell Pled Guilty to Fraud

Andrew Mitchell aka Andrew Aga on August 31, 2023, pleaded guilty to defrauding four St. Chrles Parish, Louisiana residents of insurance money following Hurricane Ida. He has remained in custody since his arrest in January 2023.

Read the full article and all of ZIFL at http://zalma.com/blog/wp-content/uploads/2023/09/ZIFL-09-15-2023.pdf

More McClenny Moseley & Associates Issues

This is ZIFL’s Fourteenth installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be an effort to profit from what some Magistrate and District judges indicate may be criminal conduct to profit from insurance claims relating to hurricane damage to the public of the state of Louisiana.

Read the full article and all of ZIFL at http://zalma.com/blog/wp-content/uploads/2023/09/ZIFL-09-15-2023.pdf

Crime Doesn’t – Pay it Costs

“Runner” Must Pay Restitution to Insurers

The Eighth Circuit was called upon to decide the amount of restitution owed by a participant in a recruitment-and-kickback scheme aimed at defrauding automobile-insurance companies. The district court ordered restitution for every chiropractic patient that Abdisalan Hussein recruited from 2013 onward.

In United States of America Plaintiff v. Abdisalan Abdulahab Hussein, also known as Abdisalan A. Hussein, No. 22-1275, United States Court of Appeals, Eighth Circuit (August 23, 2023) the Eighth Circuit resolved the dispute.

Read the full article and all of ZIFL at http://zalma.com/blog/wp-content/uploads/2023/09/ZIFL-09-15-2023.pdf

A Different Kind of Insurance Fraud

Parag Bhavsar, 42, of Newark, pleaded guilty before US District Judge Madeline Cox Arleo to information charging him with one count of conspiracy to commit mail fraud and one count of conspiracy to commit interstate transfer of stolen property.

Bhavsar, an Indian national admitted that he defrauded various telephone providers and insurance companies out of millions of dollars by using stolen or fake identities to submit fraudulent claims for replacement cellular devices and then reselling those devices outside the US.

Read the full article and all of ZIFL at http://zalma.com/blog/wp-content/uploads/2023/09/ZIFL-09-15-2023.pdf

Good News From the

Las Vegas man sentenced to 27 months for wire fraud and telemedicine scheme. Sergey Duman was sentenced for participating in a scheme to defraud private health insurance companies. Duman purchased Cedar Care Pharmacy in Allentown, Pennsylvania, in January 2020. For the next six months, Cedar Care effectively acted as a shell pharmacy for a telemedicine fraud scheme. During that time, an entity purporting to be a telemedicine company regularly submitted prescriptions to the pharmacy that had been written without the knowledge of the listed patient. The pharmacy then fraudulently submitted private insurance, and Medicaid claims for the prescriptions even though the pharmacy never provided the prescribed medications to patients. He faces 27 months’ imprisonment for wire fraud. The Court also ordered a 3-year term of supervised release to follow the term of imprisonment and over $4.8M in restitution. The Texas Commissioner of Insurance Cassie Brown has served an emergency cease and desist order on multiple insurance companies.

Read the full article and all of ZIFL at http://zalma.com/blog/wp-content/uploads/2023/09/ZIFL-09-15-2023.pdf

Strems Files for Bankruptcy –Will He Get His $36 Million?

Scot Strems, a Florida lawyer known as “public enemy number one” by Florida’s property insurance industry after it filed thousands of unnecessary lawsuits – many of them on the same claim – has slipped into bankruptcy, putting a deep red line under an expensive and frustrating chapter in the state’s insurance litigation crisis.

Read the full article and all of ZIFL at http://zalma.com/blog/wp-content/uploads/2023/09/ZIFL-09-15-2023.pdf

Evidence of Arson Not Needed to Defeat Arson-for-Profit

Back in 2001 I examined James E. Mitchell under oath on behalf of his insurer, United National Insurance Company who admitted to misrepresenting material facts when he applied for the insurance. As a result of that EUO and the testimony of the underwriter, United National decided to rescind the policy rather than accuse him of fraud and arson for profit, but still refuse his claim for fire damage and offered to return the premium he paid. Of course, in an expression of “chutzpah” (unlimited gall) he sued only to have the court conclude the rescission was appropriate.

Read the full article and all of ZIFL at http://zalma.com/blog/wp-content/uploads/2023/09/ZIFL-09-15-2023.pdf

Health Insurance Fraud Convictions

Dentist back in jail for practicing without a license

William C. Gardner used to advertise himself as the best cosmetic dentist in Albuquerque. Now he’s an inmate at the Sandoval County Detention Center, accused of “defiantly practicing dentistry” despite the revocation of his license more than three years ago.

Read the full article and all of ZIFL at http://zalma.com/blog/wp-content/uploads/2023/09/ZIFL-09-15-2023.pdf

Rescission Results in Policy Void From its Inception

ARSON FOR PROFIT IS A VIOLENT CRIME

Read the full article and all of ZIFL at http://zalma.com/blog/wp-content/uploads/2023/09/ZIFL-09-15-2023.pdf

Other Insurance Fraud Convictions

Injured Worker Gets Help from a Friend…and a Bat

According to ICW Group a Florida Truck Driver who was injured on the job made a few unfortunate decisions when she decided she wasn’t ready to go back to work and wanted to make a little extra money. She asked a friend to hit her with a baseball bat! Her friend complied, but not to the satisfaction of the truck driver. The injured worker grabbed the bat and took a few extra swings at herself for good measure.

Read the full article and all of ZIFL at http://zalma.com/blog/wp-content/uploads/2023/09/ZIFL-09-15-2023.pdf

Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com

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Arson for Profit Scheme Defeated by Rescission

Posted on September 14, 2023 by Barry Zalma

Rescission of Insurance for Innocent Misrepresentation of Material Facts

See the full video at https://rumble.com/v3hdpj2-arson-for-profit-scheme-defeated-by-rescission.html and at https://youtu.be/CAarrB84t6E

Evidence of Arson Not Needed to Defeat Arson-for-Profit

In James E. Mitchell, Individually and as Trustee of the Mitchell Family Trust v. United National Insurance Company, No. B170364, Court of Appeal, Second District, Division 5, 25 Cal.Rptr.3d 627, 127 Cal.App.4th 457 (March 8, 2005) the Court of Appeal established a standard for dealing with rescission of an insurance policy. It concluded that an insurer may, under Insurance Code sections 331 and 359, rescind a fire insurance policy based on an insured’s negligent or unintentional misrepresentation of a material fact in an insurance application. Because there was undisputed evidence that the insurer relied upon the misstatements of material facts in the insured’s application for insurance, the summary judgment granted by the trial court was affirmed.

BACKGROUND

During the policy period, the building was destroyed by arson. The arsonist, an acquaintance of Mitchell’s, perished in the fire. The trial court granted summary judgment. Mitchell purchased the building in February 2000 in the name of his trust. On April 11, 2000, Mitchell’s brokers applied for insurance to Debra Messina of Excess & Surplus Lines Insurance Brokers, Inc., an authorized underwriter for United National.

Mitchell represented in the application that:

the property to be insured consisted of a 3,420-square-foot commercial building;
the building was to be used by Mitchell as a “video production studio and offices”;
the business to be conducted in the building had $20,000 in payroll and generated $300,000 in receipts;
there was no existing insurance on the building;
the building had no uncorrected fire code violations;
the building had a burglar alarm; and
Records & Records & Filmworks, Inc. (later changed to James E. Mitchell) was the purchaser of the building.

In fact, the seven representations were false including the fact that the building was subject to a City of Los Angeles abatement order stating that the building could not be occupied without a clearance or repaired without a permit and contained such deficiencies as being open to unauthorized entry, littered with combustible debris, excessive dry weeds or vegetation, broken windows, damaged or missing doors, damaged exterior wall covering, damaged interior wall and ceiling covering, and deteriorated flooring (and no permit had been obtained for corrective work on these deficiencies).

THE ARSON FIRE

Carl Robinson a business consultant with a prospective buyer for the property. Mitchell gave Robinson the keys to the property for the purpose of showing it to the prospective buyer. On November 22, 2000, while Mitchell was in Chicago, Robinson set fire to the building and was killed in the ensuing blaze.

Although evidence indicated that Mitchell retained Robinson to burn the building, his death in the fire, made proving Robinson and Mitchell were working an arson-for-profit scheme, United National limited its denial of Mitchell’s claim on the ground that it had rescinded the policy based on material misrepresentations in Mitchell’s application for insurance.

Mitchell admitted that the application for insurance submitted to United National “contained inaccuracies” that caused United National to rescind the policy but claimed that those inaccuracies were not material and were solely the fault of his brokers.

The trial court granted summary judgment in favor of United National finding as a matter of law on the undisputed facts that the information sought by United’s underwriter and denied to it by plaintiff’s false answers and omissions was material to United’s decision to provide insurance coverage.

DISCUSSION RESCISSION BASED ON MISREPRESENTATION

United National based its right to rescind the policy on the California Insurance Code including section 331 that states: “Concealment, whether intentional or unintentional, entitles the injured party to rescind insurance” and Insurance Code section 359 that similarly provides: “If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time the representation becomes false.”

An insured’s negligent or inadvertent failure to disclose a material fact in the application that materiality is determined under “a subjective test; the critical question is the effect the truthful answers would have had on [the insurer], not on some ‘average reasonable’ insurer.”

For the purpose of rescission of an insurance policy the materiality of a misrepresentation is determined by its probable and reasonable effect upon the insurer.

The application questions in this case plainly impacted decisions on whether to insure and the premium to charge. In his response to defendant’s statement of undisputed material facts Mitchell admitted that questions concerning the ownership, size and condition of the building, the nature of the business to be conducted, and its payroll and receipts, and the existence of insurance under the FAIR Plan were factors impacting either the underwriting decision or the amount of the premium and coverage, and that his answers to these questions may have affected the decision to bind coverage and the amount of the premium.

United National’s representative, Ms. Messina, said she relied upon Mitchell’s answers to the questions, including the condition of the building, its use, and whether it was covered by insurance. Contrary to Mitchell’s argument, Ms. Messina had no obligation to verify the accuracy of the representations since she could rely on the covenant of good faith and fair dealing that required the insured to honestly apply for the insurance.

The undisputed evidence showed that there were material misrepresentations in Mitchell’s application for insurance. United National had the right to, and did, rescind the policy based on these misrepresentations. The trial court therefore properly granted summary judgment. The judgment was affirmed and United National was awarded its costs on appeal.

ZALMA OPINION

It is often difficult to prove that an insured was involved in an arson-for-profit scheme. Mitchell was out of the state when the fire occurred and the arsonist died in the fire he set. Evidence indicated that Robinson was only trying, on behalf of Mitchell, to sell the property to United National by destroying the building by fire. Since Robinson’s death made the intentional arson fraud difficult to prove United National decided to use the lies on the application to defeat the fraud since, although Mitchell understood fraud he did not understand insurance and lied to get the policy. The rescission established that that liars never prosper.

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No Defense for Assault & Battery

Posted on September 13, 2023 by Barry Zalma

Clear & Unambiguous Exclusion

See the full video at https://rumble.com/v3h38ks-no-defense-for-assault-and-battery.html and at https://youtu.be/C8dgu3CRekU

The insurer sued seeking a declaratory judgment that it need not defend or indemnify defendant TFS NY against a personal injury lawsuit pending in the New York Supreme Court, Kings County.

In Clear Blue Specialty Insurance Company v. TFS NY, INC. d/b/a Sugardaddy’s and Tywan Simmons, No. 22-CV-1915 (AMD) (SJB), United States District Court, E.D. New York (September 6, 2023) resolved the dispute.

BACKGROUND

The defendant owns and operates a nightclub. Between April 2019 and April 2020, the plaintiff insured the defendant under a Commercial General Liability insurance contract. Like any other insurance policy, this contract had exclusions. At issue in this case is the scope of a Sublimited Assault or Battery endorsement and a Third Party or Contracted Security exclusion-specifically, whether these provisions require the plaintiff to defend and indemnify the defendant against a lawsuit pending in New York state court.

The parties agreed that the insurance policy was in effect when the incident took place and that Mr. Simmons’s lawsuit triggers the plaintiff’s duty to defend under the Sublimited Assault or Battery endorsement, because the lawsuit includes negligence claims. They also agree that Castillo was “an outside security company” as defined by the insurance policy.

The policy provides, in part: “We have no duty to defend any insured against any claims or ‘suits’ seeking damages for ‘bodily injury’, ‘property damage’ … or ‘injury’ in regard to the matters covered by this exclusion (outside security services) and we have no duty to pay damages in regard to the matters covered by this exclusion”

DISCUSSION

The plaintiff argues that it has no duty to defend or indemnify against Mr. Simmons’s lawsuit, because it disclaimed liability over any “suit” “involving” “operations of any third party or contracted security services provider.” While the defendant agrees that the plaintiff is not liable for claims involving Castillo and does not have to indemnify the defendant for them, it nevertheless contends that the plaintiff must “defend the entire action” because the lawsuit includes claims against the defendant and its employees, who “are covered by [the] policy.”

Insurance Contracts Under New York Law

The duty to defend is contractual in nature. Accordingly, there is no duty to defend where the alleged basis for liability is not within the coverage of the policy.

The Plaintiff’s Duty to Defend

The defendant contends that the plaintiff owes a duty to defend because the exclusion is silent as to whether insurance would apply to separate and distinct claims of assault and battery that are made against the defendant and its employees. However, the plain language of the exclusion, which states repeatedly that it “does not apply to any . . . ‘suit’ . . . directly or indirectly based on, attributable to, arising out of, involving, resulting from or in any way related to the acts, omissions or operations of any third party or contracted security services provider.”

Mr. Simmons’s complaint alleges that he was “assaulted” and “sustain[ed] serious and severe injuries” “as a direct consequence and result of the acts of [all] the defendants.” Mr. Simmons’s “suit,” therefore, “involv[es]” a “contracted security services provider” and falls within the exclusion.

The complaint alleges that the altercation was the product of joint action of the defendant, its employees and Castillo, each of which is included in every cause of action. The plaintiff thus has no duty to defend.

Finally, even if there is no duty to defend on the facts alleged in Mr. Simmons’s complaint, there might still be a duty to indemnify the defendant if the state court dismisses the claims against Castillo or if the jury decides that the defendant’s employees were the only ones involved in Mr. Simmons’s assault. But at this time, the exclusion must be enforced, and the plaintiff has no duty to defend.

Duty to Indemnify

Developments in Mr. Simmons’s lawsuit may trigger a duty to indemnify. If that happens, the defendant may move to reopen the case. However, since the underlying suit is at the pleading stage, the plaintiff’s motion for summary judgment was granted as there is no duty to defend. The defendant may move to reopen on the issue of indemnification if the state court determines that Castillo played no part in Mr. Simmons’s assault.

ZALMA OPINION

Clear and unambiguous language in an exclusion will always be enforced. Since the suit alleged that the security service was involved in his assault, battery and injury the exclusion applied and there was no duty to defend. Since little evidence exists for the USDC to rule upon it left open the possibility – slim – that there might be a duty to indemnify. A Solomon-like decision that will not require the death of a baby nor the defense of the security company.

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Unwritten Intent Uninforceable

Posted on September 12, 2023 by Barry Zalma

Ambiguous Policy Language Forces Insurer to Pay Losses It Did not Intend to Cover

INSURER HOIST ON ITS OWN PETARD

See the full video at https://rumble.com/v3gtwb2-unwritten-intent-uninforceable.html and at https://youtu.be/GH2BlKoazhg

Insurers often complain that their insureds do not read the insurance policy and compel them to fulfill all policy terms or receive nothing. In my experience almost no one reads an insurance policy until there is a dispute over a claim. In Michigan an insurer did not read the policy it issued.

In Village Of Kalkaska v. Michigan Municipal League Liability And Property Pool, No. 359267, Court of Appeals of Michigan (August 31, 2023) a policy was issued to the Village that provided – by fairly clear language – coverage the insurer did not intend to provide and as a result found it obligated to pay claims for millions of dollars.

Michigan Municipal League Liability and Property Pool appealed the trial court’s order denying its motion for summary disposition claiming that its intent was to exclude coverage for the losses claimed by the Village.

FACTS

In 1996, plaintiff, Village of Kalkaska, contracted with certain of its employees to provide lifetime retirement health benefits. In 2014, plaintiff determined that the obligation to provide lifetime retirement health benefits to the employees was prohibitively expensive. Plaintiff therefore adopted a resolution ending its agreement to pay the employees lifetime retirement health benefits.

Four of the affected employees sued plaintiff for breach of contract. In one of the lawsuits, a jury awarded the employee present and future damages. Plaintiff thereafter settled the lawsuits with the other three employees for present and future damages. Plaintiff asserts that thus far the cost of resolving the lawsuits is nearly $2,000,000.

Defendant is “a non-profit self-insurance pool owned and governed by its members” that provides liability insurance to numerous Michigan municipalities. The policy provided plaintiff with various types of coverage, including coverage for liability in the administration of its employee benefits program.

Defendant moved for summary disposition on the basis that the policy does not provide coverage for plaintiff’s intentional breach of its contract with its employees.

DISCUSSION

An insurance policy provision is valid if it is clear, unambiguous, and not in contravention of public policy. If a contract does not violate the law or a traditional defense to enforceability, a court is required to apply the unambiguous provisions of the contract as written because an unambiguous contract reflects the intent of the parties as a matter of law.

THE TRIAL COURT’S DECISION

The trial court first determined that the policy provides coverage, but then concluded that ambiguity in the policy necessitated submitting the matter to the jury. The trial court concluded that because the question was a close one, a genuine issue of material fact existed whether the Village was engaged in the administration of a benefits program when it terminated the employees’ lifetime retirement health benefits. Since a decision to terminate an employee benefit plan may qualify as a negligent act, error, or omission which causes a termination or cancellation of an employee under an employee benefit plan the Court noted that defendant made a strong argument that the wholesale termination may not be as comparable to administering under the plan, nothing within the contract of insurance that has been drafted by the defendant appears to allow for the distinction, even if it’s a good argument because it simply says, “effecting enrollment, termination, or cancellation of employees.”

The trial court concluded that no exclusions from coverage applied, but because it was a close question it was therefore ambiguous.

PUBLIC POLICY

Defendant contended that regardless of the policy language, defendant obviously did not intend to assume any and all contractual liabilities upon which plaintiff chooses to intentionally default.

Defendant argued that it did not agree to pay plaintiff’s contractual obligations, but only to pay damages arising from plaintiff’s wrongful acts in administrating its employee benefits program, i.e., damages arising from plaintiff’s breach of its contract obligations under its employee benefits program.

The claim in this case allows plaintiff intentionally to shift its contractual obligation to defendant. By so doing it provides an unreasonable result not intended by defendant. But the intent of the parties is determined by the unambiguous policy language as a matter of law and a court may not fail to enforce a contract on the basis of reasonableness.

Therefore, the trial court erred by finding an issue of material fact for the jury; the trial court should have found that the policy provides coverage and granted summary disposition for the plaintiff and the Court of Appeals reversed and remanded for entry of judgment for plaintiff.

ZALMA OPINION

The greatest sin that an insurer can commit is to write an insurance policy that is ambiguous and that, as a result, provides a coverage it did not intend. In this case, because of the weakness of the policy language the insurer finds itself obligated to pay for a run-of-the-mill breach of contract, something no insurance company would intentionally cover. Insurers who usually insist on its insureds reading the policy as issued should not complain when it failed to read the policy it delivered to the insured in a manner understandable and unambiguous.

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Barry Zalma Will Speak at the California Conference of Arson Investigators Fall Seminar

Posted on September 11, 2023 by Barry Zalma

I Am Honored to Speak on “How Insurers and Arson Investigators Have Taken the Profit from Arson-for-Profit Schemes”

California Conference of Arson Investigators Fall Seminar from October 16 to 19, 2023

I will speak on “How Insurers and Arson Investigators Have Taken the Profit from Arson-for-Profit” and the final panel discussion on October 19, 2023 at the CCAI Fall Seminar, that runs from October 16-19, 2023, at San Louis Obisbo, California.

Click here to see the class schedule,

Click here to register in the CCAI Online Store

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Insurer Has Right to Control Defense

Posted on September 11, 2023 by Barry Zalma

If Insurer Agrees to Defend Insured May Not Expect it to Pay Independent Counsel

See the full video at https://rumble.com/v3fzo87-insurer-has-right-to-control-defense.html and at https://youtu.be/mG5QUyMymds

The Insureds sued Mid-Continent for failing to pay their attorneys’ fees in defense of the underlying lawsuit where the Insureds alleged several causes of action against Mid-Continent, including breach of contract, bad faith, and several Insurance Code violations. Mid-Continent filed a motion for summary judgment and the trial court denied the motion for summary judgment.

In Mid-Continent Casualty Company v. Harris County Municipal Utility District No. 400, No. 09-22-00252-CV, Court of Appeals of Texas, Ninth District, Beaumont (August 31, 2023 the Court of Appeal was asked whether Mid-Continent Casualty Company (Mid-Continent) must reimburse its insureds, Harris County Municipal Utility District No. 400 (MUD 400), Anne Marie Wright (Wright), and Cheryl Smith (Smith), for fees and expenses incurred by attorneys chosen by the MUD 400 to defend the Insureds in an election contest lawsuit.

BACKGROUND

This dispute arises from an underlying lawsuit filed by Edgar Clayton (Clayton) in June 2018 (the “Clayton Suit”). In the Clayton Suit, Clayton challenged the result of the May 5, 2018 election of two open at-large director positions on the MUD 400 board of directors.

Mid-Continent’s Insurance Policy Terms and Reservation of Rights

Mid-Continent issued a Directors and Officers Policy insuring MUD 400, and its directors. On July 24, 2018, Mid-Continent offered a defense, subject to a reservation of rights. Mid-Continent notified the Insureds that attorney Britt Harris had been retained by Mid-Continent to defend all Insureds in the Clayton Suit.

The Policy

The terms of the relevant insurance policy include the following language: “Exclusions …. B. The Insurer shall not be liable to pay Loss resulting from any Claim: (4) based upon or attributable to any of the Insureds gaining in fact any profit, remuneration, or advantage to which such Insured was not legally entitled[.]”

It also provided that “The Insureds shall not, except at personal cost, make any payment, admit any liability, settle any Claims, assume any obligation, or incur any expense without the Insurer’s written consent.”

The Clayton Suit was eventually dismissed in favor of all Insureds.

Insureds Demand for Reimbursement

On February 1, 2019, after the Clayton Suit had been dismissed, the insureds wrote to Mid-Continent demanding reimbursement for attorneys’ fees and expenses. The insureds stated, “Because of the potential conflicts with joint representation as well as the existence of actual conflicts due to your reservation of rights letter, the insureds defended the case with counsel of their choosing[.]”

On January 29, 2019, during the trial, Clayton voluntarily dismissed his suit against the Insureds with prejudice. Mid-Continent denied the claims for reimbursement of the fees incurred by counsel chosen by the Insureds in the defense of the Clayton Suit.

Mid-Continent’s attorney, mailed a check made out to MUD 400 for $4290 to pay the fees generated by the insured’s independent lawyer’s firm between the time that it first provided a copy of Clayton’s petition to Mid-Continent and the time that Mid-Continent offered to assume the defense of the Clayton Suit, under a reservation of rights.

Duty to Defend Under Eight-Corners Rule

Mid-Continent had certain obligations to defend the Insureds. The duty to defend is distinct from, and broader than, the duty to indemnify. In determining a duty to defend Texas follows the eight-corners rule, sometimes called the complaint-allegation rule. The rule directs Texas courts to determine an insurer’s duty to defend its insured based on:

the pleadings [filed] against the insured and
the terms of the insurance policy.

Under the eight-corners rule, an insurer’s duty to defend its insured from a underlying suit is determined by the pleadings and allegations in the underlying suit (here the Clayton Suit), considered in light of the policy provisions, without regard to the truth or falsity of those allegations.

Right to Control Defense

Liability insurance policies, like the one at issue, typically confer on an insurer the right to control the defense of claims against the insured.

DISCUSSION

“Advantage,” as used in the policy exclusion refers to something like a monetary advantage. In the underlying suit, Clayton’s petition refers to several election irregularities. None of Clayton’s allegations are monetary advantages gained by the Insureds.

After examining the allegations in the Petition and the wording in the policy, the Court of Appeals agreed with Mid-Continent that the facts upon which coverage depends would not be adjudicated in the underlying election contest suit. Nowhere in Clayton’s pleadings does Clayton allege that Wright, Smith, or MUD 400 received a monetary advantage.

Since Clayton’s petition did not allege facts that would necessitate separate counsel. Clayton does not allege anything in his petition that would make the interests of Wright, Smith, or MUD 400 adverse to the interests of each other.

CONCLUSION

For the foregoing reasons, the Court of Appeals concluded that Mid-Continent had no duty to reimburse its Insureds for fees and expenses incurred by attorneys chosen by the Insureds to defend the Insureds in the Clayton Suit. Mid-Continent had no duty to reimburse its Insureds for the costs they incurred in hiring separate counsel to defend each Insured in the Clayton Suit. The trial court erred in ruling that Mid-Continent owed a duty to pay its Insured for fees and expenses incurred by attorneys chosen by the Insureds to defend the Insureds in the Clayton Suit.

ZALMA OPINION

Even with the eight corners rule accepting all allegations in a suit as true there was simply no facts alleged that put coverage at issue. Although if there is coverage and a conflict of interest independent counsel can be compelled at the expense of the insurer. However, when, as in this case, there was no conflict the insureds were not entitled to compel their insurer to pay for the charges of independent counsel.

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Claims in Catastrophe

Posted on September 8, 2023 by Barry Zalma

What to do When Your Property is Damaged in a Catastrophe

If your house was damaged or destroyed by a wildfire, windstorm, hurricane, tornado or flood as a result of state declared catastrophes and you had a fire, homeowners, flood insurance, tenant’s homeowners or condominium policy you will be dealing with an insurance adjuster. You should recognize that dealing with an insurance adjuster in a catastrophe is usually fairly easy because of the number of claims the adjuster is required to deal within a short time.

Presenting a Claim

If your house was damaged or destroyed by a wildfire, windstorm,
hurricane, tornado or flood as a result of state declared catastrophes
and you had a fire, homeowners, flood insurance, tenant’s homeowners or
condominium policy you will be dealing with an insurance adjuster. You
should recognize that dealing with an insurance adjuster in a
catastrophe is usually fairly easy because of the number of claims the
adjuster is required to deal within a short time.

The full lengthy article is available at https://open.substack.com/pub/barryzalma/p/claims-in-a-catastrophe-ef7?r=nblph&utm_campaign=post&utm_medium=webhttps://open.substack.com/pub/barryzalma/p/claims-in-a-catastrophe-ef7?r=nblph&utm_campaign=post&utm_medium=web

Presenting a Claim

https://open.substack.com/pub/barryzalma/p/claims-in-a-catastrophe-ef7?r=nblph&utm_campaign=post&utm_medium=webhttps://open.substack.com/pub/barryzalma/p/claims-in-a-catastrophe-ef7?r=nblph&utm_campaign=post&utm_medium=webPresenting a Claim

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Criminal Lawyer Effectively Defended Child Abuser

Posted on September 8, 2023 by Barry Zalma

Insurance Fraud Charges Against Defense Counsel Does Not Result in Reversal for Ineffective Counsel

See the full video at https://rumble.com/v3foe1s-criminal-lawyer-effectively-defended-child-abuser.html and at https://youtu.be/hMmK9h7ch3o

While Jesse Steven Castro’s case was pending, his attorney was charged with two insurance fraud felony offenses. Castro’s case proceeded to trial, and a jury convicted him of continuous sexual abuse of a child. Castro filed a motion for new trial claiming that he received ineffective assistance of counsel because his attorney failed to disclose and was distracted by her pending charges and in so doing, prioritized her financial interest in representing him above a fiduciary duty to disclose her pending charges.

In Jesse Steven Castro v. The State Of Texas, No. 14-19-00679-CR, Court of Appeals of Texas, Fourteenth District (August 31, 2023) the Court of Appeals resolved the dispute.

BACKGROUND

Castro hired Jana Lewis-Perez to represent him. Lewis-Perez was then indicted for two felony insurance fraud offenses. Castro’s case proceeded to trial. After the jury returned its guilty verdict, it assessed punishment at 38 years’ confinement. The trial court overruled Castro’s motion for new trial.

EFFECTIVENESS OF COUNSEL

On appeal, Castro argued that Lewis-Perez was unconstitutionally ineffective because she had a conflict of interest between a fiduciary duty to her client to disclose her pending charges and her financial self-interest. According to Castro, Lewis-Perez’s conduct amounted to fraud by nondisclosure, resulting in denial of Castro’s “right to counsel of his choice.”

A trial court abuses its discretion in denying a motion for new trial only when no reasonable view of the record could support the trial court’s ruling. The Sixth Amendment to the United States Constitution guarantees in all criminal prosecutions that the accused shall have the right to reasonably effective assistance of counsel. The Sixth Amendment also guarantees a defendant the right to “conflict-free” representation.

A defendant demonstrates a violation of his right to reasonably effective assistance of counsel based on a conflict of interest if he can show that:

his counsel was burdened by an actual conflict of interest; and
the conflict had an adverse effect on specific instances of counsel’s performance.

An actual conflict of interest exists if counsel is required to make a choice between advancing her client’s interest in a fair trial or advancing other interests (perhaps counsel’s own) to the detriment of her client’s interest. A potential conflict of interest is insufficient to reverse a conviction.

On appeal, Castro contends that Lewis-Perez provided ineffective assistance of counsel because she had a conflict of interest, i.e., a fiduciary duty to disclose her criminal fraud indictments to Castro. In Texas, a fiduciary relationship exists between attorneys and clients as a matter of law. As a fiduciary, an attorney is obligated to render a full and fair disclosure of facts material to the client’s representation. However, this duty to inform does not extend to matters beyond the scope of representation.

Although Castro attested that Lewis-Perez seemed distracted and unprepared, he points to no specific examples of this behavior in the record and merely speculates that the cause of any alleged distraction was his attorney’s pending cases.

Castro does not cite, nor did the Court of Appeals find, any authority to support his proposition that Lewis-Perez’s failure to inform him of her pending felony indictments was an “actual conflict of interest.”

The court was not persuaded that Castro established that Lewis-Perez was burdened with an “actual conflict of interest” that required her to make a choice between advancing Castro’s interest in a fair trial or advancing her own interest. Absent a showing that a potential conflict of interest became an actual conflict, the court refused to speculate about a strategy an attorney might have pursued, but for the existence of a potential conflict of interest.

The record did not demonstrate that Lewis-Perez’s alleged failure to inform Castro of her pending insurance fraud charges, unrelated to Castro’s continual sexual abuse of a child charges, was so outrageous that no competent attorney would have engaged in it. During trial Lewis-Perez made numerous objections, cross-examined witnesses, called three witnesses for the defense, and was successful in asking the jury to sentence Castro toward the lower end of the punishment range.

The Court of Appeals concluded that Castro failed to show a reasonable probability that, but for trial counsel’s presumptively deficient performance, the result of the trial would have been different. Having concluded that the trial court did not abuse its discretion in denying Castro’s motion for new trial based on ineffective assistance of counsel.

ZALMA OPINION

Insurance fraud is a serious crime. However, a charge of insurance fraud is nothing more than that, the lawyer charged is presumed to be innocent. In addition, the Court of Appeals recognized that she effectively and aggressively defended Castro and successfully got the jury and trial judge to sentence Castro at the lower end of the punishment range even after he was convicted of the heinous crime of continuous sexual abuse of a child.

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How to Defeat Insurance Fraud

Posted on September 7, 2023 by Barry Zalma

A Fictionalized True Crime Story

This is a Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers.

See the full video at https://rumble.com/v3fcgmw-how-to-defeat-insurance-fraud.html and at https://youtu.be/q1rw1mSLLHw

Insurance Fraud Scheme Born After Business Failure

The Ben-Cohain brothers, quite by accident, came upon an imaginative fraud. The Los Angeles County District Attorney, after a lengthy investigation, charged them with violation of Penal Code § 550, insurance fraud, among others related crimes.

The Ben-Cohain brothers operated a small furniture assembly facility in Los Angeles County. They imported knocked-down children’s furniture (made of composition wood and Formica laminates) from Israel. They hoped to sell it to wealthy people in Beverly Hills and West Los Angeles who wished to support the State of Israel. The quality of the merchandise, however, was not high and the Ben-Cohain brothers had difficulty making a profit.

In 2019 the rains came to Southern California and a skylight in their industrial building leaked some water onto a small amount of their composition board furniture. They called their insurance agent, reported a claim, and with invoices for most of the merchandise they presented and received $75,000 for their actual water damage loss.

The Ben-Cohain brothers purchased the salvage from their insurer for a small deduction in their total claim and sold it shortly after receiving payment. With the proceeds, one brother purchased a used Mercedes sedan and the other a used BMW.

They were soon short of money since they still could not sell the low quality knocked-down merchandise.

They sought out the services of Mr. Rosenberg, a public insurance adjuster, who attached a nylon rope to sprinkler head thirty feet above the warehouse floor and yanked it out of its fitting. The water flowed for fifteen minutes until the fire department came and turned off the sprinkler system. The fire department, with its usual efficiency, vacuumed out the water and protected the furniture.

After the fire department was gone, the brothers, noting that insufficient damage had been done by the water from the sprinklers, ordered their two laborers to form a bucket brigade. The laborers poured twenty-five buckets of water from the restroom on the stored furniture effectively making all of their inventory unsaleable.

Shortly thereafter they called the insurer and a claim was presented for $1,000,000. The insurer, unsuspecting, retained salvors to inventory the damaged furniture and determine if any had a value in salvage. While the salvors were doing their work, one laborer came up to him and whispered:

“Senior, no es accidente!”

Fraud Detected

Although the salvor spoke no Spanish he understood what was said to him. He reported the statements to the insurer. The insurer, American Indemnity Insurance Company, immediately assigned the case to investigator Steve Thomas of its special investigation unit. Mr. Thomas retained the services of Spanish speaking investigators who met with the laborers and obtained the full story of the fraud.

American Indemnity then retained counsel to take the sworn examination of the laborers. Counsel, provided instructions for further investigation and later examined the insureds under oath at the request of the insurer.

American Indemnity, although suspicious, wanted to complete the fair and thorough investigation required of it by California law. During the examination under oath it seemed the brothers Ben-Cohain had blatantly lied. They lied about the cause of the incident. They lied about what was destroyed. They lied about where the things destroyed were manufactured. They lied about the quality of the knocked-down furniture. They lied about the financial condition of their business. They lied about everything.

The brothers provided invoices and shipping documents they intended to prove the value of the damaged furniture. The documents proved that the support for their claim was false and fraudulent. They testified that none of their furniture was purchased domestically. At the time, they did not know that their laborers had introduced American Indemnity to the local manufacturer.

The examinations under oath filled more than four days of sworn testimony. When the testimony was completed American Indemnity denied the claim and declared the policy void because of fraud. American Indemnity, following California law, reported the claim to the fraud division of the Department of Insurance.

The fraud investigator, Martin Sandiego of the Department of Insurance fraud division, commenced the criminal investigation that resulted in a presentation of the case to the Los Angeles County District Attorney’s Office. After considerable work by American Indemnity, its counsel and almost a year of detailed investigation by the Fraud Division, the Los Angeles County District Attorney filed seven felony counts against each brother for insurance fraud and grand theft.

They arrested both brother’s Ben-Cohain while they were parked illegally near a night club on Sunset Boulevard in West Hollywood. After spending a weekend in the County Jail, the brothers were released on $75,000 cash bonds. They left town and forfeited bail.

The Fraud Division of the State of California Department of Insurance, the Los Angeles District Attorney’s Office, and American Indemnity Insurance Company deserve commendation for their dedication, hard work and courage in thwarting an attempt at a major fraud.

The two laborers, although fearing deportation as illegal aliens, did the right thing and stopped what could have been the perfect crime.

As long an honest people refuse to stand by and let criminals succeed there is still hope for this country and its insurance industry.

I know things are changing. In the first twenty-five years I had been involved with attempts to defeat or deter insurance fraud I could count ten people, out of the thousands I have investigated, who were arrested for insurance fraud. In the last twenty-five years cases in which I have been involved in dealing with insurance fraud readers of my twice monthly newsletter, Zalma’s Insurance Fraud Letter, can see that convictions for insurance fraud across the country, seem to be increasing. The increase is either due to serious effort to defeat fraud or an increase in fraud that is so serious that it cannot be ignored by prosecutors.

I sincerely hope that the new insurance commissioners and prosecutors across the country will redirect the efforts of their local Fraud Division and attorneys general to prosecute insurance fraud.

Besides million dollar frauds, like that attempted by the Ben-Cohain brothers, effort must be made to bring to justice those fraudsters who avoid attention by committing insurance fraud for small amounts of money repeatedly.

The bail bondsman travelled to Israel to collect the $150,000 his company was required to pay when they defaulted and escaped to Israel. He found them only to have his demand for money met with two UZI machine guns threatening his life. Applying good common sense the bail bondsman returned to California and wrote off the debt on his tax return.

In 1990 Moshe Ben-Cohain and Menashe Ben-Cohain started a course of conduct that led to their arrest for insurance fraud. They failed to appear after posting bond and are, along with their co-conspirator, Raz Rosenberg, fugitives.

Adapted from my book Insurance Fraud Costs Everyone Available as a Kindle Book and Available as a Paperback from Amazon.com.

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Taking the Profit Out of Fraud is Effective

Posted on September 6, 2023 by Barry Zalma

GEICO Continues to Sue Allegedly Fraudulent Health Care Providers

See the full video at https://rumble.com/v3f027c-taking-the-profit-out-of-fraud-is-effective.html and at https://youtu.be/shrd1r5j3o4

Defendants Todd Koppel, M.D. and Garden State Pain Management, P.A. (collectively, the “Koppel Defendants”) moved the USDC to quash a subpoena served by Plaintiffs Government Employees Insurance Co., upon the New Jersey Office of the Insurance Fraud Prosecutor (“OIFP”).

In In Re Government Employees Insurance Co., et al. v. Todd Koppel, et al., No. 2:21-cv-03413-MEF-JRA, United States District Court, D. New Jersey (August 28, 2023) the USDC dealt with the right to subpoena the prosecutor’s files.

BACKGROUND

Plaintiffs sued the Koppel Defendants alleging that they unlawfully obtained personal injury protection (“PIP”) benefits from Plaintiffs by making false representations as to their compliance with New Jersey law when, in fact, they were operating in violation of New Jersey law by paying kickbacks to chiropractors in exchange for patient referrals. Based on these allegations, Plaintiffs have asserted claims against the Koppel Defendants pursuant to the New Jersey Insurance Fraud Prevention Act, N.J.S.A. 17:33A, the civil Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962, and common law fraud and unjust enrichment.

The Subpoena sought a copy of all criminal and investigative records from the OIFP’s Medicaid Fraud Control Unit concerning the Koppel Defendants.

The Koppel Defendants filed a motion to quash the Subpoena, arguing, that the information sought is irrelevant and that Plaintiffs have failed to show a compelling need for the requested information, which is privileged under New Jersey law. Alternatively, the Koppel Defendants request entry of a protective order to prevent discovery of the Koppel Defendants’ investigative files.

DISCUSSION

Defendants challenge the Subpoena based on relevancy, privilege, and undue burden. A party lacks standing to challenge subpoenas issued to non-parties based on those grounds. The Court found that Defendants lack standing to challenge the Subpoena on the grounds of relevancy and undue burden.

In addition the defendants failed to convincingly articulate why the information that is subject to the subpoena is irrelevant, or how its production would be unduly burdensome. To the contrary, the Court noted that the information Plaintiffs seek overlaps with the allegations in the complaint and is, therefore, relevant.

Conversely, the Koppel Defendants do have standing to challenge the Subpoena because they claim the records are privileged under New Jersey law.

Privilege

State statutes allow that confidentiality of the information and materials in the possession of OIFP shall not preclude OIFP from coordinating and providing information to and among referring entities on pending cases of suspected insurance fraud, where such action would serve the public interest in facilitating the investigation or prosecution of insurance fraud.

Moreover, the IFPA specifically addresses disclosure of OIFP investigatory files to insurers such as Plaintiffs. The discretion of the Insurance Commissioner controls whether the records sought by Plaintiffs remain privileged. It is not a privilege that belongs to the Koppel Defendants themselves. The OIFP did not join in the Koppel Defendants’ Motion, nor did the OIFP sought to quash the Subpoena independently. Because the OIFP’s only objection to disclosure is the lack of court order, the USDC found that the Subpoena does not unnecessarily hinder the OIFP and that the records may be disclosed. The Koppel Defendants Motion to quash was, as a result, denied.

The Koppel Defendants also failed to meet their burden to show that good cause exists to issue a protective order. Accordingly, the Koppel Defendants’ alternative request for a protective order was denied.

ZALMA OPINION

GEICO should be honored for its proactive acts against insurance fraud by taking the profit out of insurance fraud since very few such fraudsters are arrested, tried or convicted. Although the OIFP did not prosecute the Koppel Defendants, they collected information that will assist GEICO in its efforts to obtain damages and fines from the Koppel Defendants who they believe defrauded GEICO. Taking the profit out of fraud is more effective than prosecution of fraudsters for crime.

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It’s Not Nice to Accuse a Person of Insurance Fraud

Posted on September 5, 2023 by Barry Zalma

ANTI-SLAP MOTION FAILS BECAUSE PLAINTIFF NOT A PUBLIC FIGURE

See the full video at https://rumble.com/v3epftz-its-not-nice-to-accuse-a-person-of-insurance-fraud.html and at https://youtu.be/6ADc60NHBqk

Tien Dung Tran, the owner of two YouTube channels, appealed from an order denying his special motion to strike plaintiffs Manh Van Truong (Mike) and Meiji Truong’s complaint pursuant to the anti-SLAPP statute. He contends plaintiffs’ claims, which include defamation and intentional and negligent infliction of emotional distress, arise from protected activity because the statements he allegedly made on YouTube came after plaintiffs voluntarily put themselves in the public spotlight in the local Vietnamese-American community.

In Manh Van Truong et al. v. Tien Dung Tran, G061703, California Court of Appeals, August 29, 2023 the evidence did not demonstrate that the targeted comments were made in connection with an issue of public interest.

FACTS

Plaintiffs and defendant are members of the Vietnamese-American community in Orange County, California. Plaintiffs own and operate several home improvement related businesses. Defendant owns two YouTube channels for which he creates video content. The complaint refers to defendant’s YouTube content as primarily “Vietnamese community gossip.”

Following purported statements made by defendant about plaintiffs on his YouTube channels, plaintiffs sued defendant for defamation. The suit said the remarks conveyed the following about Mike that, among other things he committed insurance fraud; was a communist supporter who conspires with Vietnamese gangsters to attack America; among other things.

Nine days after plaintiffs filed an amended, more detailed, complaint, defendant filed a special motion to strike the complaint pursuant to the anti-SLAPP statute. On the first occasion, the day before the 2020 presidential election, Mike asked defendant and another highly viewed YouTube channel to come film. He agreed to have the interview livestreamed and the recording posted on defendant’s channel. The next day, Mike requested defendant remove the recorded content; defendant did so.

Following a hearing on the anti-SLAPP motion, the trial court issued an order denying it in full. Specifically, defendant did not show the alleged statements were made in connection with an issue of public interest.

DISCUSSION

Defendant asserts the trial court erroneously found the anti-SLAPP statute does not apply to plaintiffs’ claims. The court’s consideration of the anti-SLAPP motion was appropriate, notwithstanding the filing of the first amended complaint.

Litigation of an anti-SLAPP motion involves a two-step process.

the moving defendant bears the burden of establishing that the challenged allegations or claims arise from protected activity in which the defendant has engaged.
for each claim that does arise from protected activity, the plaintiff must show the claim has at least minimal merit.

If the plaintiff cannot make this showing, the court will strike the claim.

Contending the trial court erred in concluding the alleged statements fall outside the scope of the anti-SLAPP statute, defendant invokes two categories of protected activity. Among the matters to consider are whether the subject of the speech or activity was a person or entity in the public eye or could affect large numbers of people beyond the direct participants. Defendant contends plaintiffs were quasi-public figures in positions of prominence who actively sought public attention.

The defendant did not meet his burden of demonstrating the targeted statements fall within the scope of activity protected by the anti-SLAPP statute, the trial court properly denied his motion.

ZALMA OPINION

Accusing a self-made billionaire of insurance fraud and other criminal conduct is, on its face, defamatory. The Anti-Slap statute protects the publisher of such comments if the person accused is a protected activity. The attempt failed in the trial court and was affirmed by the Court of Appeal.

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What is Insurance?

Posted on September 4, 2023 by Barry Zalma

INSURANCE IS

What is Insurance?

INSURANCE IS

Posted on September 4, 2023 by Barry Zalma

Insurance is a contractual relationship between an insurer and a person described as the insured or assured.

California has, by statute, created one of the clearest definitions of insurance. The California Insurance Code states:

Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event. [California Insurance Code § 22]

The California Legislature, by Insurance Code Section 22, merely codified three centuries of common law defining insurance. This definition applies in most states. Whether codified, or only part of the state’s common law, there can only be insurance if there is an agreement by one to indemnify against a contingent or unknown event.

To function properly the parties to the contract of insurance must deal fairly and in good faith with each other because to do otherwise, to act unethically, will make it impossible to properly analyze the risks one party – the insurer – is asked to take for the other – the insured. Both parties to a policy of insurance must be confident that the other is dealing ethically and with the utmost good faith or the entire system will collapse…

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Crime Doesn’t – Pay it Costs

Posted on September 4, 2023 by Barry Zalma

“Runner” Must Pay Restitution to Insurers

See the full video at https://rumble.com/v3dvz7b-crime-doesnt-pay-it-costs.html and at https://youtu.be/-PeDZ5tTz-8

Background

Hussein ended up at a Twin Cities chiropractic clinic after an automobile accident. The visit resulted in a job: the clinic hired him to recruit patients. And then another one did too.

Hussein’s role was to bring in as many accident victims as possible. Each new patient could undergo treatment up to $20,000, the limit of basic economic benefits available under most Minnesota automobile-insurance policies. In return, Hussein received a kickback of up to $1,500, a portion of which he shared with patients who returned for multiple visits.

The U.S. Government started “Operation Backcracker,” targeting insurance fraud. If Hussein “qualified as [a] ‘runner’ [under Minnesota law], then insurers had no obligation to reimburse the clinic[s] for any services provided.” After a jury trial, the district court ordered Hussein to pay restitution to the insurance companies he defrauded. He complained, alleging he was not a “runner.” Because of Minnesota statutory law, the Eighth Circuit explained that not all recruiters are runners and restitution only applied to runners.

On remand, the amount of restitution decreased. This time, the district court concluded that Hussein qualified as a runner for only 53 of the 65 victims, which dropped the award to $155,864. Hussein, for his part, has adopted an all-or-nothing strategy: he does not believe he owes a single penny of restitution.

ANALYSIS

The linchpin of Hussein’s argument is that he was never a runner.

Once runners are involved, it taints the relationship and automatically relieves insurers of their duty to pay. In statutory terms, once a runner recruits someone, every health-care service provided afterward becomes “non-compensable and unenforceable as a matter of law.”

A runner is someone who “directly procures or solicits prospective patients” for “pecuniary gain” and “knows or has reason to know that the provider’s purpose” is to “obtain . . . benefits under or relating to” an automobile-insurance contract. Hussein had an active role in recruiting accident victims. He also helped coach patients to deceive insurance companies all in an effort to line his own pockets.

The trial record completes the picture. Hussein received up to $1,500 per patient he recruited, which satisfies the pecuniary-gain requirement. A series of text messages establishes the remaining elements. In one, Hussein texted with a clinic owner about how one patient was “a piece of shit” for not coming to enough appointments.

The Eighth Circuit concluded that Hussein “directly procure[d]” these patients with at least a “reason to know,” if not actual knowledge, that the provider’s purpose was to obtain benefits under an automobile-insurance contract.

The problem for Hussein is that the government met its ultimate burden of proving the loss. In a fraud case, the government bears the burden of proving a prima facie case that each victim was entitled to restitution, and the defendant bears the burden of rebutting it.

One patient who testified that she called him about chiropractors even though she did not know him while he referred to another as “a piece of shit” for ending her visits. Neither were friends. And it goes without saying that being a “helpful person” in the Somali community does not transform every interaction into one “made in a social setting.”

The judgment of the district court was affirmed

ZALMA OPINION

The crime of insurance fraud is destroying the ability of the insurance industry to serve the public and make a small profit. “Runners” called “cappers” in other states are the first level of many insurance fraud schemes. Hussein used his involvement in the Minnesota Somali community to allow unscrupulous medical providers to defraud insurers. The court, applying the strange Minnesota statute required Hussein to make restitution to most of the insurers he defrauded and put a small dent in auto insurance fraud in Minnesota. One can only hope they also convicted the health care providers and made them pay restitution as well.

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Zalma’s Insurance Fraud Letter – September 1, 2023

Posted on September 1, 2023 by Barry Zalma

ZIFL – 9/1/2023 – Volume 27, Issue 17

See the video at https://rumble.com/v3dm1jr-zalmas-insurance-fraud-letter-september-1-2023.html and at https://youtu.be/Ur-JWll4jZg

This, the seventeenth issue of the 27th year of publication Zalma’s Insurance Fraud Letter provides multiple articles on how to deal with insurance fraud in the United States.

Subscribe to Zalma’s Insurance Fraud Letter

The Source for Insurance Fraud Professional

Allstate’s Qui Tam Actions Work to Take the Profit Out of Fraud

Man Bites Dog Story – Allstate May Sue on Behalf of State for Insurance Fraud

Allstate Insurance Company and several of its affiliates (collectively, Allstate) brought qui tam actions on behalf of the State of California alleging insurance fraud under the California Insurance Frauds Prevention Act (IFPA) (Ins. Code, § 1871 et seq.) and the Unfair Competition Law (UCL) (Bus. &Prof. Code, § 17000 et seq.) against three medical corporations, a medical management company and its parent company, four physicians, and Sattar Mir, an individual.

Read the full September 1, 2023 issue at https://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-09-01-2023.pdf

More McClenny Moseley & Associates Issues

This is ZIFL’s Thirteenth installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be an effort to profit from what some Magistrate and District judges indicate may be criminal conduct to profit from insurance claims relating to hurricane damage to the public of the state of Louisiana.

Read the full September 1, 2023 issue at https://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-09-01-2023.pdf

Bad Men Must Serve the Time for Crimes from Insurance Fraud to Murder

Insurance Fraud is a Violent Crime

After a multiple-count indictment against dozens of members of the Gangster Disciples five of them, Alonzo Walton, Kevin Clayton, Donald Glass, Antarious Caldwell, and Vancito Gumbs, appealed their convictions and sentences following a joint trial. Each raised several grounds for reversal contending they were overcharged and over-sentenced. Some argued that the Racketeer Influenced and Corrupt Organizations Act violated the Sixth Amendment because the jury failed to find that the conspiracy involved murder.

Read the full September 1, 2023 issue at https://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-09-01-2023.pdf

Good News From the

Edgar Perez, 51, of Miramar, Florida, the final defendant of a 12 person, $53M healthcare fraud conspiracy has been sentenced to federal prison. This will be followed by three years of supervised release and ordered to pay restitution of $547K for his participation in a healthcare fraud conspiracy that billed Coalition member Blue Cross Blue Shield for more than $53M for services, including allergy tests and physical therapy, that patients never received. The defendants opened multiple clinics throughout South Florida and paid recruiters to provide personal information for insurance beneficiaries. The defendants then submitted fraudulent bills to BCBS and received payments into clinic bank accounts before transferring them to personal accounts, making cash withdrawals, and laundering money through various businesses and individuals.

Read the full September 1, 2023 issue at https://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-09-01-2023.pdf

Health Insurance Fraud Convictions

Four East Tennessee Doctors Convicted in Drug Trafficking and Fraud Scheme

Evann Herrell, Mark Grenkoski, Keri McFarlane, and Stephen Cirelli were each physicians who worked for EHC Medical in Harriman and Jacksboro, Tenn. Robert Taylor, who opened EHC Medical in 2013 and operated it through late 2018, pleaded guilty to a drug trafficking conspiracy charge and was sentenced earlier this year to 30 months in prison. He forfeited $13.8 million and paid an additional fine of $200,000. Lori Barnett, a registered nurse who helped Taylor supervise day-to-day operations, and three other physicians – Matthew Rasberry, Helen Bidwaid, and Eva Misra – also pleaded guilty to related drug or money laundering charges and are awaiting sentencing.

Read the full September 1, 2023 issue and multiple convictions at https://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-09-01-2023.pdf

Other Insurance Fraud Convictions

Murdaugh’s Friend Pleads to More Charges in Helping Steal Insurance Funds

Cory Fleming, a 54-year-old former attorney, convicted murderer Alex Murdaugh `s old college buddy has pleaded guilty to a second set of charges for helping the disgraced South Carolina attorney steal millions of dollars of insurance settlements from the sons of Murdaugh’s dead housekeeper.

Read the full September 1, 2023 issue and multiple convictions at https://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-09-01-2023.pdf

Insurance Fraud by Insurers

Insurance fraud is not limited to fraud by insureds against their insurers or claimants defrauding people who are insured. Much to the shame of the insurance industry, the reverse also happens.

Read the full September 1, 2023 issue at https://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-09-01-2023.pdf

Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 55 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com

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Appraisal Exists to Establish Quantum of Loss

Posted on August 31, 2023 by Barry Zalma

Appraisal Required to Establish Amount of Loss

See the full video at https://rumble.com/v3daabp-appraisal-exists-to-establish-quantum-of-loss.html and at https://youtu.be/2rMXTWnqGR0

The plaintiff, Shelter Mutual Insurance Company (Shelter), appealed the circuit court of Coles County’s March 28, 2023, oral pronouncement denying its motion for judgment on the pleadings and ordering the parties to proceed forward with the appraisal process as outlined in the at-issue insurance policy, and the circuit court’s written March 30, 2023, order memorializing the same.

In Shelter Mutual Insurance Company v. Tim Morrow and Jodie Morrow, 2023 IL App (5th) 230249-U, No. 5-23-0249, Court of Appeals of Illinois, Fifth District (August 24, 2023) was asked to determine if appraisal could be compelled.

BACKGROUND

Shelter issued a homeowners insurance policy to the Morrows (the Policy). The Policy was in effect from April 7, 2021, to April 7, 2022. The policy provided:

Appraisal

If you and we fail to agree on the market value, total restoration cost, actual cash value, or amount of loss, as may be required in the applicable policy provision, either party may make written demand for an appraisal. …

The appraisers shall then appraise the loss, stating separately the market value, total restoration cost, actual cash value, or loss to each item as may be required in the applicable policy provision….

On December 10, 2021, a hail and windstorm occurred affecting the Morrows’ property. The Morrows submitted a claim to Shelter for damage allegedly sustained because of the storm. Shelter inspected the claimed property damage and determined that the damage added up to less than the Morrows’ deductible of $1000. In response, the Morrows obtained their own report and estimate from a public adjuster, the Accuval Group LLC, dated December 21, 2021. That report indicated that a complete tear-off and replacement of the residence roof and garage roof, as well as removal and replacement of the fencing would be necessary at a total cost of $38,198.15, less the $1000 deductible.

Following this report, Shelter obtained a second assessment, this time from Donan Engineering, dated February 2, 2022. That report concluded that some of the damage claimed was attributed to the storm, but other damage claimed was not. That report found that much of the damage was attributable to installation errors, inadvertent man-made damage, and sealant strip failure. On February 8, 2022, Shelter sent a letter informing the Morrows that it continued to view the loss as not exceeding their deductible. On May 5, 2022, the Morrows submitted a written demand for appraisal pursuant to the appraisal provision in the policy.

Shelter sued for declaratory judgment seeking to deny insurance coverage to the Morrows for the alleged damages resulting from the December 10, 2021, storm. The Morrows answered the complaint and filed counterclaims asserting breach of contract and bad faith, specifically alleging bad faith for Shelter’s refusal to submit to the appraisal process as outlined in the Policy and as previously invoked by the Morrows on May 5, 2022.

The circuit court denied the motion for judgment on the pleadings and ordered the parties to proceed with the appraisal process as previously invoked by the Morrows and as outlined in the Policy.

ANALYSIS

An appraisal clause is analogous to an arbitration clause. The Court of Appeals held that an order denying a motion to dismiss was tantamount to an order denying arbitration.

Shelter contends that a party’s “right or obligation to engage in the appraisal process is limited to what they agreed to in the policy, and to the nature of the appraisal process itself.” It then argues that an appraisal process is limited to “determining the price of covered damage,” but is not the proper venue for “resolving a dispute about whether covered damage occurred,” or “the extent of that covered damage.”

Shelter’s assessment acknowledged that a tornado touched down approximately 1.8 miles northwest of the Morrows’ property on the date of the storm. The report acknowledged that “higher wind speeds affected [the Morrows’] property.” Based upon these facts alone, it is evident that the question at issue is not whether a covered loss occurred because a covered loss was found by Shelter’s own adjuster in its report. Therefore, the true dispute of the parties is the amount of that covered loss.

This case involves a determination of the “amount of loss,” which is expressly stated within the appraisal clause as an appropriate issue for determination under that process

The Court of Appeals affirmed the circuit court’s oral pronouncement.

ZALMA OPINION

Once the insurer determined that there was a covered loss and the insured presented evidence that the loss exceeded the deductible contrary to the insurer’s position the policy provided a method to resolve the dispute over the amount of loss. There was no basis to deny coverage – once the adjuster determined the existence of a covered loss – if agreement could not be reached appraisal was the appropriate method of resolving the dispute over the quantum of the loss.

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Information Request not Refusal to Appear

Posted on August 30, 2023 by Barry Zalma

Premature Denial for Failure to Appear at EUO Fails

See the full video at https://rumble.com/v3cy1y2-information-request-not-refusal-to-appear.html and at https://youtu.be/W1EI8iXnvAk

It is not Reasonable to Deny a Claim for Failure to Appear for EUO Before the Date the EUO was Scheduled to Occur

In March 2021, an arsonist destroyed a building on the Brockton Fair fairgrounds known as the “State Building,” owned by BAS Holding Corporation (“BAS”) and, according to BAS, insured against loss by Philadelphia Indemnity Insurance Company (“Philadelphia”). Philadelphia undertook an investigation to determine coverage. The insurer sought an examination under oath (“EUO”) of George Carney, the president and owner of BAS, scheduled the EUO and denied the claim before the scheduled date.

In Philadelphia Indemnity Insurance Company v. BAS Holding Corporation, Brockton Agricultural Society, No. 22-1296, United States Court of Appeals, First Circuit (August 17, 2023) the First Circuit recognized that a requirement for EUO must be reasonable and the claimed premature denial was probably not reasonable.

FACTUAL BACKGROUND

Philadelphia sued seeking a declaration that BAS breached the insurance policy’s EUO condition. In its answer, BAS denied that it had refused to submit to an EUO. On cross-motions for summary judgment, the district court granted judgment for Philadelphia on the ground that BAS failed to cooperate by not providing Carney for an EUO. BAS appealed.

BAS is the record owner of the State Building, a landmark building located on the Brockton Fair fairgrounds in Brockton, Massachusetts. The interior of the building was mostly open space used for exhibits or storage at the annual agricultural fair. The fire set by the arsonist on March 17, 2021, caused a total loss of the structure. The remains of the building were razed that same day.

At the time of the fire, BAS held a policy (the “Policy”) issued by Philadelphia that BAS claimed covered the State Building. BAS gave notice of the fire to Philadelphia mere hours after it broke out. As its investigation unfolded, Philadelphia became convinced that the State Building may not be insured under the Policy and wrote a “reservation of rights” letter to BAS.

On June 16, 2021, Philadelphia also sought an EUO of BAS in accordance with the Policy’s EUO condition. Philadelphia did not ask BAS to produce any specific person for the EUO. Instead, Philadelphia asked BAS to designate someone who could answer questions relating to eight enumerated topics.

BAS presented Susan Rodrigues as its designee to attend the EUO. The president of BAS, Carney, testified in his deposition that “Sue [Rodrigues] . . . and Joe Cappucci, they handled all the insurance.” She did “everything” to help put on the fair and also oversaw maintenance work on the fairgrounds and buildings throughout the year, including the State Building.

During her examination, Rodrigues identified six people – five maintenance workers and Carney – who might be able to provide additional information in response to BAS’s questions. On August 4, the day after Rodrigues appeared for her EUO, Philadelphia sent an email to BAS’s counsel requesting EUOs of the six individuals she identified as potentially having additional relevant information. In that email, Philadelphia specifically asked for Carney to appear for an EUO on August 19, 2021. Pointing to Policy language stating that Philadelphia could only take an EUO if it is “reasonably required,” BAS wrote that Philadelphia’s request for six additional examinations under oath was improper and was not permitted by the Policy or law, particularly where Philadelphia has still not identified a factual basis upon which it has reserved its rights, and the information produced to date establishes that coverage is owed under the Policy for the loss.

According to Philadelphia, this email constituted a second refusal of BAS to produce Carney for an EUO. On August 13, less than 72 hours after sending the August 10 email, and before BAS had sent any response, Philadelphia sent an email denying BAS’s insurance claim for “refusing Philadelphia’s requests for Examinations Under Oath. The email stated, in relevant part: “BAS’s refusal to participate in the EUOs [that counsel] requested on August 4, 2021 constitutes a material breach of the Insured’s obligations under the policy and reflects its continuing failure to cooperate in Philadelphia’s investigation or settlement of the claim.”

ANALYSIS

Under Massachusetts law, attendance at reasonably requested EUOs is a condition precedent for insurance coverage. Thus, the question before the First Circuit was a narrow one: did the district court rule correctly — as a matter of law — that BAS willfully and without excuse refused Philadelphia’s request for an EUO of Carney, thereby breaching the insurance contract?

The timeline of Philadelphia’s denial weighs heavily against any conclusion that BAS refused to produce Carney for an EUO. On August 3, Rodrigues appeared for an EUO on behalf of BAS. On August 4, Philadelphia asked for EUOs of Carney and the maintenance workers. On August 4 and August 9, BAS sent emails that, read together, requested further information before submitting to additional EUOs. On August 10, Philadelphia wrote to BAS asking for “confirm[ation] that Mr. Carney will appear next Thursday, August 19th, for an EUO as previously requested, or [make] contact . . . to arrange for a new date, time and place within the next two weeks” and to “confirm that BAS will make the other individuals available for their EUO’s [sic] on Friday, August 20, 2021,” or on various dates thereafter. This email from Philadelphia provided some explanation as to why the interview of Carney was reasonably required.

Moreover, Rodrigues’s EUO testimony reveals that Philadelphia’s assertion that “Ms. Rodrigues . . . was in fact unable to testify about any of the topics of examination specified by [Philadelphia]” is flatly wrong. While it is clear that Rodrigues was not able to answer all of Philadelphia’s questions.

The First Circuit found that it was impossible to find on the record that BAS willfully and without excuse refused to present Carney for an EUO. In other words, Carney’s non-appearance at an EUO, especially since his first possible opportunity to appear on August 19 had not yet passed when Philadelphia notified BAS of its decision to deny coverage, in and of itself does not support the district court’s grant of summary judgment as a matter of law in favor of Philadelphia.

The entire discussion between the parties about whether there should be additional EUOs of Carney and the five maintenance workers spanned only nine days. The First Circuit vacated the district court’s grant of summary judgment for Philadelphia and remanded for further proceedings not inconsistent with the opinion.

ZALMA OPINION

I have personally taken hundreds of EUOs. I, like the First Circuit, cannot understand how an insurer can deny a claim for failure to appear on a date prior to the date scheduled for the EUO to take place. Such a denial makes no sense. I have sat with a court reporter at the time and place scheduled for an EUO and no one appeared and, thereafter denied the claim only to withdraw the denial when the witness produced an excuse like the birth of a child or the hospitalization of the witness. The failure to wait a week or two to deny the claim gained Philadelphia nothing more than the ire of the First Circuit.

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Hindsight Can’t Change Policy Limits

Posted on August 29, 2023 by Barry Zalma

Agent for Insurer Only an Order Taker

See the full video at https://rumble.com/v3cm3zb-hindsight-cant-change-policy-limits.html and at https://youtu.be/5U0V6_ZG9Xc

Steven and Nancy Taylor appealed the trial court’s granting defendant Lake Michigan Insurance Company’s motion for summary disposition and dismissing their case and the court’s denial of their motion for reconsideration. In Steven G S Taylor and Nancy Taylor v. Lake Michigan Insurance Company, No. 360974, Court of Appeals of Michigan (August 24, 2023) the plaintiffs alleged the agent should have required higher policy limits for the replacement of their log home.

FACTUAL BACKGROUND

Plaintiffs purchased property with a log home in Bellaire, Michigan during September 2015 for $408,000. They contacted defendant, an independent insurance agency with whom they previously did business, to assist them in securing homeowner’s insurance. Plaintiffs told defendant’s representative, Lisa Stanard, that they believed the property likely would hold a greater value in the future because they purchased it through a “distressed sale.” Stanard obtained information from Steven regarding the nature of the house and input and processed that information to generate a rate comparison and replacement cost estimate which she then uploaded into Auto-Owners Insurance Company’s (Auto-Owners) computer system.

Auto-Owners’ had the property inspected and concluded that house replacement cost estimate to $709,734. Auto-Owners issued plaintiffs a homeowner’s insurance policy which they accepted without objection. The policy contained an increased cost endorsement (ICE) that provided for payment to plaintiffs of an additional 25% ($175,250) if certain conditions were met.

Plaintiffs’ house burned and they suffered a total loss. Plaintiffs submitted a claim to Auto-Owners and a proof of loss which stated that plaintiffs estimated among other things the building damage amount at $1,282,500 and acknowledged the policy limit of $876,250 the ICE amount. Auto-Owners advised the plaintiffs that they paid the full policy limit including the ICE addition to the limits of $876,250.

Unsatisfied with Auto-Owners’ settlement of their claim, plaintiffs sued defendant essentially alleging that defendant owed them a duty to ensure the adequacy of their homeowner’s insurance policy to enable them to rebuild their house.

ANALYSIS

An insurance policy constitutes a contractual agreement between the insurer and the insured. Michigan law has long presumed that one who has signed a written contract knows the nature of the instrument and understands its contents. The rule of reasonable expectations clearly has no application to unambiguous contracts. An alleged “reasonable expectation” cannot supersede the clear language of a contract

Under common law an insurance agent whose principal is the insurance company owes no duty to advise a potential insured about any coverage.

The general rule of no duty only changes when (1) the agent misrepresents the nature or extent of the coverage offered or provided, (2) an ambiguous request is made that requires a clarification, (3) an inquiry is made that may require advice and the agent, though he need not, gives advice that is inaccurate, or (4) the agent assumes an additional duty by either express agreement with or promise to the insured.

Defendant is an independent insurance agency that serves as an agent of several insurance carriers and assists its clients in procuring insurance from those carriers. As such, defendant owed plaintiffs a duty to strictly follow their instructions. The record reflects that Auto-Owners sent a third-party inspector to plaintiffs’ Bellaire property to inspect and present Auto-Owners with the inspection report from which Auto-Owners adjusted upward the estimated house replacement cost.

No evidence establishes that anyone affiliated with defendant agreed or promised plaintiffs to assess the adequacy of the policy limits set by and offered by Auto-Owners. The record reveals that Steven knew the terms of the policy before accepting Auto-Owners’ offer.

The trial court properly determined that no genuine issue of material fact precluded granting summary disposition for defendant. The trial court correctly determined that defendant did not owe plaintiffs a duty to assess and ensure the adequacy of the homeowner’s insurance coverage that plaintiffs obtained from Auto-Owners and plaintiffs failed to establish a special relationship that gave rise to a duty to do so.

ZALMA OPINION

An insurance agent transacts insurance on behalf of the insurer. As such the insurer’s agent is an order taker who presents the order to its principal, the insurer. The agent owes no obligation to a potential insured to determine the appropriate replacement value of the dwelling. It, based on information from its principal, set a policy limit suggested by the insurer which the insured accepted and obtained the full policy limit when the house burned. Regardless, they wanted more and sued.

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Unambiguous Exclusion Effective

Posted on August 28, 2023 by Barry Zalma

Every Exclusion Must be Read as a Part of an Entire Policy

See the full video at https://rumble.com/v3bludf-unambiguous-exclusion-effective.html and at https://youtu.be/Ke_FxgwbH3E

McCann Plumbing, Heating & Cooling, Inc.; Andrew R. McCann; and Wendy McCann, sued defendant, Pekin Insurance Company, for breach of an insurance contract and sought declaratory judgment because the demolition of an adjacent building damaged the McCann’s building.

In McCann Plumbing, Heating & Cooling, Inc., an Illinois Corporation; Andrew R. McCann; and Wendy McCann v. Pekin Insurance Company, an Illinois Corporation, 2023 IL App (3d) 190722, No. 3-19-0722, Court of Appeals of Illinois, Third District (August 23, 2023) the Court of Appeals broke ground with the first ruling on a governmental action exclusion.

BACKGROUND

Andrew R. McCann and Wendy McCann own a commercial building in Onarga, Illinois. They purchased the building in 2011 to use for McCann Plumbing, Heating &Cooling, Inc., their heating, ventilation, and air conditioning business. At the time of purchase, the building was surrounded by two uninhabited properties to its north and south.

Pekin Insurance Company (Pekin) is a licensed provider of personal and business insurance and provides insurance policies to the residents of Illinois. The McCanns and Pekin entered into a commercial lines insurance policy. The policy provided insurance coverage for “direct physical loss of or damage to” the covered property, which included the McCanns’ building and their business’s tangible property stored in the building.

The Village of Onarga declared that the building adjacent and to the south of the McCanns’ property was in an unsafe or unsanitary condition. The Village then ordered the building to be demolished.

On January 23, 2018, a contractor retained by the Village demolished the building. The parties stipulated that, in the course of the adjacent building’s destruction, the McCanns’ building was damaged, leaving a portion of their building open to the elements. The McCanns sought coverage from Pekin for damage incurred from the January 23, 2018, demolition.

In response to the McCanns’ claim, Pekin tendered a letter on March 21, 2018, denying coverage for damage resulting from the demolition based on several exclusionary provisions of their policy, including the governmental action exclusion. In granting Pekin’s motion for judgment on the pleadings, the circuit court found that “the government[al] act[ion] exclu[sion] applies” and dismissed the case.

ANALYSIS

Neither party disputes that the Village’s directive to demolish the adjacent property constitutes an “order of governmental authority.” The parties stipulated that on or about January 23, 2018, the adjacent building was demolished. Both parties also agree, at least to some extent, that the McCanns’ property incurred damage as a result of the adjacent building’s destruction.

The central issue is whether this damage was caused “directly or indirectly” from the destruction and whether that damage falls within the purview of the governmental action exclusion under the parties’ commercial lines insurance policy.

There is no binding authority in Illinois interpreting the applicability of the governmental action exclusion, and as consequence, there is no Illinois case law offering guidance on whether this exclusion may be broadly applied to exclude losses incurred ancillary to a governmental order. The commercial lines insurance policy before the Court of Appeals features the adverbial phrase “directly or indirectly” modifying the verb “caused” within the preamble sentence for the exclusions: “We will not pay for loss or damage caused directly or indirectly by any of the following…” including governmental action.

For the exclusion to apply, however, it is necessary that the destruction of property be carried out through an order of governmental authority. Considering the preamble sentence and the relevant exclusion together, the court found, at a minimum, that the McCanns’ property damage is a loss that grew out of and was therefore “caused *** indirectly” from the destruction of the adjacent property. Further the McCanns’ loss falls under the governmental action exclusion because the damage stems from the Village’s demolition order.

The McCanns assert that the Village’s demolition order only sanctioned damage to the adjacent building and not their own. Therefore, a narrow reading of the exclusion’s phrase “by order of governmental authority” does not include the McCanns’ property, as there was never an order of destruction against their property. However, reading the policy in its entirety, the exemption covers “loss or damage caused directly or indirectly” through the “destruction of property by order of governmental authority.” A plain reading of these clauses together does not imply a separate order is required for the exemption to attach.

ZALMA OPINION

The greatest error made by people interpreting an insurance policy is to take a part of a policy without reading it in context with the entire policy. The Court of Appeals read the entire policy and disabused the plaintiffs of their claims trying to take a small part of a policy to change its meaning. The attempt failed because the full policy made it clear that the Plaintiffs property was damaged by the order of the governmental authority to demolish the adjacent property resulting directly in the damage of the plaintiffs property.

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Insurance Fraud is a Violent Crime

Posted on August 25, 2023 by Barry Zalma

Bad Men Must Serve the Time for Crimes from Insurance Fraud to Murder

See the full video at https://rumble.com/v3bjoca-insurance-fraud-is-a-violent-crime.html and at https://youtu.be/vhA5AUx272Q

In United States Of America v. Antarious Caldwell, a.k.a. Fat, a.k.a. Phat, Kevin Clayton, Alonzo Walton, a.k.a. Spike, Vancito Gumbs, Donald Glass, a.k.a. Smurf, a.k.a. Dred, No. 19-15024, United States Court of Appeals, Eleventh Circuit (August 16, 2023) the Eleventh Circuit Affirmed all but one sentence and all convictions.

BACKGROUND

The Gangster Disciples began as a loosely affiliated network of street gangs in Chicago but later became a hierarchical national criminal organization. Its hierarchy consisted of a “Chairman” and “national board” for the country, “Governors of Governors” in charge of multi-state regions, “Governors” in charge of each state, “Regents” in charge of counties, and “Coordinators” in charge of municipal-level divisions or, in larger cities, subdivisions called “counts” or “decks.” The “Chief Enforcer” managed a team of “Enforcers” who exacted punishments for violations of the gang’s rules, such as the prohibition against cooperating with the police.

Relevant Crimes

The indictment charged an array of criminal activities including carjacking and insurance fraud, attempted robbery of Eric Wilder, murder of DeMarco Franklin, Stone Mountain Inn and Central Avenue Shootings, murder of Robert Dixon, the last crime relevant to the appeal was Glass’s killing of Robert “Rampage” Dixon in August 2015.

Pretrial and Trial Proceedings

The principal charge against all the defendants was count one, which charged that the defendants conspired to conduct and participate directly and indirectly in the conduct of the Gangster Disciples through a pattern of racketeering activity in violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c). The indictment named 34 defendants, and this appeal concerns the joint trial of Alonzo Walton, Kevin Clayton, Donald Glass, Antarious Caldwell, and Vancito Gumbs, who were convicted, and Perry Green, who was acquitted.

The district court ordered that all the defendants be secured with ankle restraints throughout the trial. Walton was convicted of racketeering conspiracy, carjacking Frederick, and using a firearm during that carjacking. Clayton was convicted of the racketeering conspiracy only. Glass was convicted of the racketeering conspiracy, acquitted of the murder of Robert Dixon, convicted of carrying a firearm during a crime of violence, namely the killing of Robert Dixon, convicted of causing the death of Robert Dixon with a firearm and acquitted of two marijuana possession charges. Caldwell was convicted of the racketeering conspiracy, the attempted Hobbs Act robbery of Eric Wilder, and carrying a firearm during a crime of violence, the attempted robbery. Vancito Gumbs was convicted of the racketeering conspiracy. For each of the convicted defendants, the jury found that “the RICO conspiracy involve[d] murder.” The jury acquitted a sixth codefendant, Perry Green.

DISCUSSION

The Eleventh Circuit concluded that the district court did not abuse its discretion in its pretrial and trial procedural decisions and that the district court also did not abuse its discretion when it declined to ask questions during voir dire about unconscious bias.

Although not in effect when the trial occurred in 2019, the revised Rules require that notice of expert opinion testimony come “sufficiently before trial” for adequate preparation and does not measure timeliness based on the expected date of the testimony.

The Ankle Restraints Did Not Violate the Defendants’ Rights.

Gumbs, Glass, and Caldwell argued that the district court abused its discretion when it ordered them to be restrained at the ankles throughout trial.

The common-law rule against shackling prevents creating an unfair impression of guilt for the jury and is limited to contexts that implicate that danger. However, the record makes clear that the ankle restraints were not perceptible to the jury and no defendant alleges that he lacked access to counsel. The district court ordered that the restraints be placed on the defendants’ legs only, that they be muffled to prevent clanking, that a curtain around the defense table conceal them from the jury, and that the defendants enter and exit the courtroom outside the presence of the jury.

The District Court Did Not Impermissibly Depart from Neutrality When It Questioned a Witness.

The trial judge is more than a referee to an adversarial proceeding. Consistent with the common-law tradition, the judge may comment on the evidence and question witnesses and elicit facts not yet adduced or clarify those previously presented. This questioning is limited only by the principle that a judge must maintain neutrality between the parties.

The district judge stayed well within these bounds. He asked a single question without commenting on the veracity or relevance of the witness’s testimony. The district court did not err, let alone clearly err, when it asked a witness for that information.

The jury found that the conspiracy included actual, not inchoate, murder as part of its racketeering activities. He instructed the jury that “acts involving murder” for the purposes of finding the two racketeering activities needed for conviction extended to Georgia-law conspiracy to commit murder and attempted murder. But the district court never said that the jury should read the phrase “involve murder” to mean “involve acts involving murder.”

Sufficient Evidence Supports the Finding that Walton Intended to Cause Death or Serious Bodily Harm in the Frederick Carjacking.

Pointing a gun at someone and demanding money is the kind of evidence on which prosecutors may rely to prove the mens rea for carjacking.

Caldwell’s Conviction Under the Armed Career Criminal Act and His Sentence Must Be Vacated.

The Supreme Court recently held that attempted Hobbs Act robbery is not a “crime of violence” under section 924(c). 142 S.Ct. at 2020. So, the Eleventh Circuit must vacate Caldwell’s conviction and it remand for the district court to re-sentence Caldwell for his remaining counts of conviction.

All the other convictions and sentences were affirmed.

ZALMA OPINION

Insurance fraud is a serious crime. It is not as serious as murder. But when a group of men work together to commit murder and insurance fraud they are acting beyond reason and deserve as serious a sentence as the court can provide in accordance with the law. The appeal was their right and the Eleventh Circuit had the obligation and right to disavow them of their arguments and only changed a sentence because of a change in the law.

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Liars Must Always Lose

Posted on August 24, 2023 by Barry Zalma

False Medical History Defeats No Fault Claim

See the full video at https://rumble.com/v3ag1gi-liars-must-always-lose.html and at https://youtu.be/ByRww4rxb6U

This case arose out of an accident that occurred in 2019. Plaintiff was hit by a car at around 8:15 p.m. while riding a bicycle in Flint, Michigan. Plaintiff sustained serious injuries, including multiple broken bones and lacerations, blunt force trauma to the chest and abdomen, and a traumatic brain injury. However he submitted a claim with false representations about his past medical history and his suit was dismissed.

Ronnie Fields appealed the trial court’s order granting summary disposition to defendant, Nationwide Mutual Fire Insurance Company. In Ronnie Fields and Anderson Medical Supplies v. National General Insurance Company, Integon National Insurance Company, Garlando Doxie, Kanesha Marzette, and Michigan Automobile Insurance, Defendants, and Nationwide Mutual Fire Insurance Company, No. 361959, Court of Appeals of Michigan (August 17, 2023) the Court of Appeals gave effect to the allegations of fraud.

FACTUAL BACKGROUND

In relation to the accident, plaintiff submitted two applications for personal protection insurance (PIP) benefits through the Michigan Automobile Insurance Placement Facility (MAIPF). The applications stated that plaintiff did not have any of the same injuries prior to the accident, that he had no preexisting medical conditions, and that he had not applied for social security benefits before or after the accident. However, his second application noted that plaintiff was eligible for social security benefits, contrary to the information from the October 4, 2019 application. Each of the applications contained a fraud warning.

Plaintiff sued in February 2020 the MAIPF was required to assign his claim to an insurer. The MAIPF eventually assigned his claim to Nationwide, and Nationwide was substituted as a defendant. Nationwide ultimately filed a motion for summary disposition and alleged that plaintiff committed fraud by submitting false information in support of his claim for PIP benefits, and that he was, therefore, ineligible to receive benefits. Nationwide also alleged that plaintiff failed to disclose that he had eye surgery prior to the accident and that he is legally blind. Nationwide claimed that plaintiff violated the statute by knowingly submitting false statements in support of his claim for benefits.

The trial court entered an order granting Nationwide’s motion for summary disposition.

FRAUD

A person commits a fraudulent insurance act when: (1) the person presents or causes to be presented an oral or written statement, (2) the statement is part of or in support of a claim for no-fault benefits, and (3) the claim for benefits was submitted to the MAIPF. Further, (4) the person must have known that the statement contained false information, and (5) the statement concerned a fact or thing material to the claim.

THE LIES

Finding no dispute that the two applications for benefits erroneously indicated that plaintiff had no preexisting medical conditions and had not sustained any prior injuries that might be relevant to his claim for benefits, Plaintiff’s deposition testimony and medical records ultimately revealed that between 2012 and 2019, he was treated for complications arising from the dog bite and for injuries sustained after someone struck him with a baseball bat, including a leg fracture. Additionally, it is undisputed that plaintiff is legally blind, which was not disclosed on either application. The October 4, 2019 application also noted that plaintiff was not eligible for social security benefits, which was ultimately determined to be a false statement.

ANALYSIS

Plaintiff’s medical records could be considered as evidence of fraud even though the medical records were obtained by Nationwide during discovery, the information contained in them concerned incidents that occurred well before plaintiff applied for PIP benefits through the MAIPF. Although such evidence would not directly show that plaintiff engaged in fraud, the medical records pertain to incidents that happened well before litigation commenced. Consequently, they were properly considered by the trial court as documentary evidence in support of Nationwide’s fraud assertion.

Plaintiff signed the applications, suggesting that they must be considered his own. He argued that it is unclear whether he knew what he was signing, as he was legally blind at the time and would have needed someone to read the document to him.

Plaintiff’s medical records were not improperly considered as evidence of fraud. Moreover, since plaintiff signed the applications-particularly the November 4, 2019 application-and has provided no evidentiary proof to support the argument that he lacked the capacity to do so, that he did so by mistake, or that he was coerced or defrauded in this case, the trial court’s ruling was affirmed.

ZALMA OPINION

Even no-fault insurance statutes remove the right to benefits if the person seeking the benefits commits fraud in seeking the benefits. There is no question that the Plaintiff filed two applications for benefits that contained false statements. As a result, even though he was seriously injured, his fraudulent statements defeated his claim, proving that liars in Michigan will never prosper from the no-fault system.

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Litigants Must Never Assume

Posted on August 23, 2023 by Barry Zalma

Insurers, Agents and Brokers Sophisticated Relationships Expensive

See the full video at https://rumble.com/v3a22uw-litigants-must-never-assume.html and at https://youtu.be/e0p_YZ4x7FE

Three sophisticated commercial parties in the insurance industry entered into what appears, in hindsight, to be a somewhat unsophisticated business arrangement. That arrangement led to complex litigation, which generally isn’t a good thing for a business arrangement to lead to.

In American Builders Insurance Company v. Keystone Insurers Group and Ebensburg Insurance Agency, No. 4:19-CV-01497, United States District Court, M.D. Pennsylvania (August 4, 2023) plaintiff American Builders Insurance Company (“ABIC”) sued Defendant Ebensburg Insurance Company (“Ebensburg”) for its allegedly tortious misrepresentations in an application to ABIC for workers’ compensation insurance coverage on behalf of Ebensburg’s customer, Custom Installations Contracting Services, Inc. (“Custom”). The misrepresentations at issue involve whether Custom was engaged in roofing work and the maximum height of its operations.

On Custom’s application, Ebensburg indicated that Custom didn’t engage in roofing work and only operated at fifteen feet above the ground or lower. On that basis, ABIC issued Custom a workers’ compensation insurance policy. Later, a Custom employee fell twenty-five feet from a rooftop while working on a commercial roofing job. The employee filed for workers’ compensation benefits, which ABIC unsuccessfully opposed.

In this action, ABIC brings several tort claims against Ebensburg. Ebensburg now moves for summary judgment on ABIC’s claims, arguing in part that they’re time barred.

BACKGROUND

ABIC is a Georgia-based insurance company that issues workers compensation insurance in the Commonwealth of Pennsylvania. Ebensburg is an independent insurance agency operating in Pennsylvania owned by Carl DeYulis, and managed in part by Carl’s son, Kurtis “Kurt” DeYulis. ABIC and Ebensburg have a relationship with Keystone Insurers Group (“Keystone”), a third insurance company.

Keystone essentially operated as a sort of “matchmaker,” connecting ABIC to its network of Retail Agencies. Ebensburg is one of the Retail Agencies that is part of the Keystone association. Its relationship with Keystone is governed by a Franchise Agreement.

ABIC Changes Its Underwriting Guidelines

ABIC could change its underwriting guidelines from time to time. In 2011, ABIC revised its prior underwriting guidelines to require that all roofing risks be pre-inspected prior to the release of a quote from the underwriting department. The new guidelines (the “2011 Roofing Underwriting Guidelines”), provided that all roofing risks would “require pre-inspection prior to release of a quote from [ABIC].”

Custom’s Relationship with Ebensburg

Because Custom had never sought workers’ compensation insurance before, it obtained a policy through the Commonwealth’s State Workers’ Insurance Fund (“SWIF”). The SWIF ACORD application indicated that:

Custom engaged in commercial and residential carpentry;
Custom didn’t perform any work over fifteen feet above the ground;
approximately 90% of Custom’s work was residential and the remaining 10% was commercial; and
Custom used “basic hand tools” for its remodeling projects and to install replacement windows.

Custom Applies for Insurance from ABIC

In 2015, Custom approached Ebensburg again to inquire about switching to a private workers’ compensation insurer for more favorable rates

Kurt DeYulis primarily relied on the SWIF ACORD and its “classification of [Custom’s] business” through Custom’s “class codes,” as provided by the PCRB. Kurt DeYulis indicated that Custom engaged in commercial remodeling, didn’t work at heights higher than fifteen feet, and wasn’t engaged in any other business other than commercial remodeling. Kurt DeYulis also applied to several other insurance carriers on Custom’s behalf. As he did with the ABIC application, Kurt DeYulis didn’t indicate that Custom did roofing work on the other applications.

The James Scott Injury

In September 2015, Custom was engaged in a commercial roofing job in New Galilee, Pennsylvania. James Scott had just began working for Custom. He stepped through a skylight and fell from over twenty feet to the ground, incurring serious injuries.

The Western District Litigation and Workers’ Compensation Proceeding

In September 2015, ABIC sued Custom in the Western District of Pennsylvania, seeking rescission of the insurance policy and alleging that Custom committed insurance fraud. The trial court concluded it did not have jurisdiction over ABIC’s claim for rescission because ABIC could obtain relief in the workers’ compensation litigation and dismissed the case.

Following Judge Gibson’s order dismissing ABIC’s federal claims, the workers’ compensation litigation continued. Judge Gallishen ultimately denied ABIC’s petitions. The Pennsylvania Workers’ Compensation Appeals Board later affirmed Judge Gallishen’s decision.

LAW

Under Federal Rule of Civil Procedure 56, summary judgment is appropriate where the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.

ANALYSIS

ABIC argued that the limitations period on its claims should be tolled under either the fraudulent concealment or inherent fraud doctrine.

The parties follow:

Custom was the principal,
Ebensburg was Custom’s legal agent, and
ABIC was a third party that was harmed by actions Ebensburg took on Custom’s behalf.

When an agent like Ebensburg commits tortious acts in the scope of its agency, both the agent and principal are equally liable in tort. ABIC was aware (or should have been) of the principal-agent relationship between Custom and Ebensburg because the only way for a customer like Custom to obtain ABIC’s insurance was to go through a Retail Agency (like Ebensburg) that had powers of representation with ABIC and access to eQuotes.

On the day Scott was injured ABIC was aware that Scott “fell through a roof.” On September 14, 2015, ABIC became aware of the misrepresentations in Custom’s application.

Therefore, by September 14, 2015, ABIC was aware that:

someone submitted false information to it via eQuotes and
only Ebensburg, and not Custom, had access to the eQuotes system.

The Court concluded that those facts are sufficient to give ABIC inquiry notice of its potential claims against Ebensburg because it knew that Ebensburg had sole access to the mechanism that caused its injury.

The common thread in these elements is that ABIC knew that the alleged misrepresentation negligently or fraudulently came from two potential sources, Custom or Ebensburg (or both), and it knew that Ebensburg had access to eQuotes, the mechanism that caused its injury.

Rather than pursuing both potential sources, ABIC assumed that the misrepresentation originated with Custom rather than Ebensburg. ABIC eventually learned that its assumption was incorrect, but not until after the statute of limitations expired on its claims in September 2017.

CONCLUSION

Complicated business arrangements lead to complicated litigation. The Court acknowledged that litigators in these circumstances must toe a difficult line. ABIC appears to have fallen on the wrong side of that line. By failing to act on its knowledge that Ebensburg had access to eQuotes, the mechanism by which ABIC was injured, ABIC ran afoul of the statute of limitations. That error required Ebensburg’s motion for summary judgment to be granted.

ZALMA OPINION

It is axiomatic that when a litigant assumes a fact rather than obtaining and working on actual evidence the litigant becomes its own worst enemy and forgot that making an assumption should first break the word assume into its component parts. In this case the assumption let the statute of limitations run and left the insurer holding the cost of a workers’ compensation policy it did not owe.

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Allstate’s Qui Tam Actions Work to Take the Profit Out of Fraud

Posted on August 22, 2023 by Barry Zalma

Man Bites Dog Story – Allstate May Sue on Behalf of State for Insurance Fraud

Qui Tam Actions May Proceed to Trial

See the full video at https://rumble.com/v399e88-allstates-qui-tam-actions-work-to-take-the-profit-out-of-fraud.html and at https://youtu.be/fqtUO79izpo

In the People ex rel. Allstate Insurance Company et al. v. Discovery Radiology Physicians, P.C., et al., and v. Onesource Medical Diagnostics, LLC, et al., B315264, California Court of Appeals, Second District, Third Division (August 15, 2023) the operative complaints allege that while the medical corporations hold themselves out as providers of radiology services, they in fact act as radiology “brokers,” sending patients to radiology facilities and radiologists with which the purported medical corporations have contracted.

The trial court found the complaints failed to state causes of action under the IFPA and the UCL because they were not pled with requisite specificity.

FACTUAL BACKGROUND

Allstate’s Fraud Actions; The Initial Demurrers.

Allstate Insurance Company is an insurance company licensed to issue automobile insurance policies in California. In 2020, Allstate filed two qui tam actions alleging insurance fraud in violation of the IFPA and the UCL.

The complaints alleged that the three medical corporations were formed and controlled by Mir, who is not a physician, to broker radiology services. The resulting bills falsely identified the technical and professional services as having been provided by one of the three defendant medical corporations and grossly inflated the fees for the services provided. Allstate alleged it would not have paid the claims for services purportedly rendered by the three professional corporations had it known of the false statements and fraudulent markups.

The trial court sustained the demurrer to the first amended complaints. The trial court entered judgments of dismissal in the Discovery and OneSource actions on August 16, 2021. Allstate timely appealed.

DISCUSSION

This appeal presents four basic issues:

Are the business models alleged in the amended complaints unlawful?
If the alleged business models are unlawful, do they give rise to causes of action under the IFPA and the UCL?
Do the amended complaints plead fraud with sufficient particularity?
Does the Discovery action adequately allege delayed discovery to survive demurrer on statute of limitations grounds?

The Court of Appeals answered each question in the affirmative.

ANALYSIS

A nonlicensed individual need not examine a patient or render a medical diagnosis to engage in the unlicensed practice of medicine-to the contrary, a non-physician unlawfully practices medicine if he or she exercises undue control over a medical practice. A non-physician undoubtedly exercises undue control by owning a medical practice but may also exercise such control in a variety of other ways, including by choosing physicians to provide medical services, selecting medical equipment, determining the parameters of physicians’ employment, including case load and compensation, and making billing decisions.

Overview of the IFPA.

The IFPA was enacted to prevent automobile and workers’ compensation insurance fraud in order to, among other things, “significantly reduce the incidence or severity and automobile insurance claim payments and . . . therefore produce a commensurate reduction in automobile insurance premiums.”

A claim need not contain an express misstatement of fact to be actionable under Penal Code section 550 and Insurance Code section 1871.7, subdivision (b). Instead, these sections require only that a person knowingly, and with intent to defraud:

present a claim that is false or fraudulent in some respect,
present, prepare, or make a statement containing false or misleading information about a material fact, or
conceal an event that affects a person’s right or entitlement to insurance benefits.

In other words, “[a]n insurance claim is fraudulent under [Penal Code] section 550 and [Insurance Code] section 1871.7, subdivision (b), when it is characterized in any way by deceit or results from deceit or conduct that is done with an intention to gain unfair or dishonest advantage.”

ANALYSIS.

The present case is a fraud action brought in the name of, and on behalf of, the state of California. Nor does Allstate seek to “avoid paying for” services rendered under an insurance contract, as defendants suggest; Allstate has already paid for those services and seeks through this action to recover a statutory penalty that, if recovered, will be shared by the state. For all of these reasons, the Court of Appeals concluded that the complaints allege claims under the IFPA.

The Operative Complaints State Claims Under The UCL.

The UCL prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” (§ 17200.)” All parties agree that Allstate’s UCL claims are derivative of its IFPA claims, and thus that the UCL claims rise or fall with the IFPA claims. Because the complaints adequately plead violations of the IFPA, they also adequately plead violations of the UCL.

The Amended Complaints Were Pled With Adequate Specificity.

Because Allstate has not only pled an allegedly fraudulent practice, but also identified each of the allegedly false claims submitted as a result of that practice it has adequately pled its complaint with adequate specificity.

DISPOSITION

The judgments of dismissal were reversed with directions to the trial court to vacate the orders sustaining the demurrers, enter new orders overruling the demurrers, and reinstate the amended complaints. Allstate shall recover its appellate costs.

ZALMA OPINION

The qui tam provision of the IFPA is an effective means of reducing insurance fraud by taking the profit out of the procedure without taking on the need for proof beyond a reasonable doubt in a criminal proceeding. If there is no profit in fraud and because the IFPA can assess serious damages on the perpetrators Allstate, and all the Amici who supported it on this appeal, should be honored in the work to defeat fraud and should be emulated by other insurers who are the victims of fraud providers, whether medical, auto body shops, contractors, roofers, public insurance adjusters and lawyers.

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Sovereign Immunity

Posted on August 21, 2023 by Barry Zalma

Waiver of Sovereign Immunity Does Not Apply to Federal Statutory Claims

See the full video at https://rumble.com/v38umlg-sovereign-immunity.html and at https://youtu.be/BvRYQsiSH7k

The doctrine of sovereign immunity is an “ancient” concept. It is the long-established view that a sovereign, such as a state, is “infallible,” and, thus, immune from suit “absent the State’s consent.” The General Assembly provided such consent in the Maryland Tort Claims Act which waives the State’s immunity.

In Michele Williams v. Morgan State University, et al., No. 9-2022, Maryland Supreme Court (August 14, 2023) the Supreme Court advised the Fourth Circuit of its evaluation of the states statute waiving the State’s immunity to a tort action in a court of the State.

The original state court action was moved to federal court. Michele Williams sued her former employer, Morgan State University (“MSU”), and her former supervisor, Dean DeWayne Wickham, in his personal capacity regarding her termination from the University. In an amended complaint, Appellant added claims alleging retaliation in violation of the National Defense Authorization Act (“NDAA”), 41 U.S.C. § 4712, and the American Recovery and Reinvestment Act (“ARRA”).

As to her federal claims against MSU, Appellant alleges that her termination by MSU was impermissible retaliation for disclosing that the University, primarily Dean Wickham, had overstated “the University’s operating costs to the Corporation for Public Broadcasting and the United States Department of Education and . . . attempted to influence the 2016 Baltimore mayoral race by violating FCC regulation[s].” Eventually, the Fourth Circuit certified a question of law to the Supreme Court: “Does Maryland’s waiver of sovereign immunity for ‘a tort action’ under the MTCA extend to federal statutory claims?”

BACKGROUND

Appellant worked from 2014 to 2017 as MSU’s Director of Broadcast Operations where she oversaw and managed MSU’s radio and television stations. Appellant complained to MSU that she believed Dean Wickham’s actions violated various federal and state laws and regulations. She also complained that MSU intentionally was inflating expenses in reports submitted to state and federal agencies to secure larger grants. She alleged that her complaints resulted in her improper termination in 2017.

The MTCA’s Statutory Framework

Under the MTCA, a party injured by the negligent act or omission of a state officer or employee within the scope of the officer’s or employee’s public duties may obtain compensation for that injury from the State. By its plain terms, the statute provides that the scope of the State’s waiver of sovereign immunity is not waived for, among other things, “[a]ny tortious act or omission of State personnel that: (i) [i]s not within the scope of the public duties of the State personnel; or (ii) [i]s made with malice or gross negligence[.]”

The other central component of the MTCA, in addition to its waiver of the State’s sovereign immunity for tortious acts or omissions by State personnel, is a corresponding immunity from suit and from liability in tort for State personnel. The MTCA also contains certain limitations on the scope of the waiver of the State’s sovereign immunity beyond those that are dependent on the actions of the State personnel.

ANALYSIS

The Supreme Court concluded, and so advised the USCA that the MTCA does not waive the State’s sovereign immunity for federal statutory claims.

There is no question that MSU is an instrumentality of the State, sharing in its sovereign immunity. Although the Supreme Court concluded that the text of the MTCA is unambiguous, it noted that its interpretation of the waiver provision is consistent with the Act’s purpose and historical context. The MTCA states that it “shall be construed broadly, to ensure that injured parties have a remedy.” SG § 12-102. But a broad construction of the MTCA is not necessarily an open invitation for any injured party to file a claim.

Concluding that the General Assembly did not intend for “a tort action” under the MTCA to include federal statutory causes of action the Supreme Court noted that the MTCA’s waiver provision contains no express language indicating such a result, and the General Assembly knows how to effectively waive the State’s immunity, if that is its goal.

Furthermore, extending the scope of the waiver provision to federal statutory claims is inconsistent with both the key, neighboring provisions concerning the interplay between the State and a State employee’s immunity in certain suits, as well as the MTCA’s role as a gap-filler scheme. The certified question posed by the Fourth Circuit, and slightly rephrased by the Supreme Court is whether “a tort action” under the MTCA includes federal statutory claims. The Supreme Court’s answer was “no.” It so held because, after assessing the plain language of the MTCA, there is no evidence that the General Assembly intended to include federal statutory claims within the scope of the MTCA.

ZALMA OPINION

Every person dealing with insurance for public entities, the MSU, must understand the application of sovereign immunity that limits the need of such public entities to secure insurance to protect the governmental entity from charges that have not been waived. Insurance calculations should be limited to the needs of the entity to protect against those things where the state has waived sovereign immunity and not where sovereign immunity was not waived.

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How Not to Commit Arson

Posted on August 18, 2023 by Barry Zalma

A True Crime Story of Insurance Fraud

This is a fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The stories help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime. The names, and places have been changed to protect the Guilty.

Arson for Profit can be Expensive

Most people do not understand how hard it is to set fire to a house that will destroy the entire dwelling and its contents. Most residences simply do not have sufficient combustibles in the right place to allow for a sustained fire. Many homes, especially the more modern ones, have fail-safe devices everywhere that make accidental fires a thing of the past.

An Insured decided that the only possible means of escaping his mortgage was to burn down his house. Being a rather imaginative fellow, he decided to also make the fire look like an accident.

On leaving his house in the afternoon, he opened the gas jets on the stove, blew out the pilot on his gas dryer and water heater, and set the thermostat on his electronically ignited furnace to 80 degrees Fahrenheit. It was a hot Summer day, but he assumed it would eventually cool off a little, the thermostat would kick on the furnace, and the electronic starter would cause a gas explosion that would destroy the entire house. What he did not count on was Southern California’s Santa Ana Winds that brought heat from the desert and kept the outside temperature in the hundreds all day and into the night. The Insured was shocked that a nosy neighbor with clear sinuses would smell the gas, turn it off at the meter, and save the house.

Of course, when the Insured returned home, he had to hide his disappointment that the house was still there. Undaunted, however, he tried again the next week. This time he took no chances. He went to the hardware store and bought a case of Coleman cooking fuel and spread it throughout the house. Then he tore up a book of paper matches so that there was no cover, only matches. He lit a cigarette and placed it low between the matches and left the house confident that when the cigarette burned down it would ignite the match heads and burn down the house. He was again sorely disappointed when he returned home to find the house still there.

The would-be arsonist had his innocent wife with him as an alibi. When they entered the house, she became hysterical at the sight of the flammable liquids poured throughout the house. She insisted that he report the incident to the fire department. He wouldn’t do it so she, against his wishes, called in the Arson Investigators.

“Boy, you were lucky.” A young fire arson unit investigator said. “The idiot who tried to set fire to your house set his fuse upside down!” Immediately, his partner kicked him in the shins but it was too late to stop him.

The fact that the cigarette, to be used as a fuse, must be placed at the head of the matches, not the base, was not known to the insured and the cigarette merely burned itself out.

The Insured learned a lesson from the arson investigator. The house burned down almost totally two days later.

The claim to the insurer included, among many other things, one encyclopedia Britannica and a wooden duck decoy. These inconsequential items, making up part of a claim for more than $100,000.00 in personal property, led to the Insured’s arrest when they were found, intact and undamaged in his temporary residence.

The Insured was arrested for arson and insurance fraud. His claim was denied.

He, of course, sued for bad faith, and the insurer was required to defend the law suit for a total of five years because it could not compel his testimony at deposition or trial until his criminal case was resolved. In the fifth year of the bad faith suit the insured’s lawyer called the insurer’s lawyer and suggested his client would provide a release and dismiss the suit with prejudice for a payment of only $5,000. The adjuster in charge – although he had spent over $30,000 defending the suit, refused the settlement and instructed his lawyer to offer only $2,000.

Following instructions, the insulting offer was made and, much to the surprise of the defense lawyer, the offer was accepted. The suit finally settled with the arsonist and his presumably innocent spouse, for a payment of $2,000.00. Twenty times less than that amount expended by the insurer to defend the spurious lawsuit brought by the Insured.

Why did the Insured offer to settle for so little? For at least two reasons:

Because the District Attorney could not set a man free to try the arson case and it was continued over and over again until all the witnesses were gone or had forgotten everything they knew.

Because the District Attorney and the Insured had made a deal that if the Insured pleaded guilty to one count of insurance fraud he would not go to jail.

The District Attorney, although he knew of the insurer’s interest in the case and the lawsuit pending against it did not advise the insurer of the deal. Of course, had the insurer known that the insured was going to plead guilty to insurance fraud they would have paid nothing.

The case was never tried. Two days after the settlement was paid in the civil action and more than five years after the fire, the Insured appeared in criminal court and pleaded guilty to one count of insurance fraud. He was given probation. The case wasn’t a priority matter to the prosecutor since only an insurance company was being hurt. The fact that the insurer was required to defend a bad faith suit for five years at enormous cost was of no apparent concern to the prosecutors.

The Insured did not profit from the fire with a cash award. He was relieved of his mortgage debt [which the insurer was required to pay to the mortgagee who had not been culpable in the arson] and he paid his lawyer one third of the $2,000 settlement. Since the insured was judgment proof the insurer lost, as uncollectable, the amount paid to the mortgagee and sold the bare land.

Interestingly, the arson investigator who worked so hard to find evidence to arrest the insured was later arrested and convicted as a serial arsonist. Apparently, he was upset that there was an arson fire in his town that he did not set.

Adapted from my book Insurance Fraud Costs Everyone available at Available as a Kindle Book and Available as a Paperback from Amazon.com.

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Never Lie to Insured

Posted on August 16, 2023 by Barry Zalma

INTENTIONAL MISCONDUCT EXPOSED INSURER TO PUNITIVE DAMAGES

An extra today because I’ll be unable to post tomorrow.

See the full video at https://rumble.com/v386rg0-never-lie-to-insured.html and at https://youtu.be/DZtRvpwKH9A

Susanne Cook (“Appellant”) appealed the trial court’s denial of her motion for leave to amend her complaint to assert a claim for punitive damages against Florida Peninsula Insurance Company (“the Insurance Company”). In Susanne Cook v. Florida Peninsula Insurance Company, No. 5D22-2334, Florida Court of Appeals, Fifth District (August 11, 2023) the Court of Appeals resolved the dispute.

BACKGROUND

Following the conclusion of a first-party lawsuit for windstorm insurance benefits, Appellant filed a motion for leave to amend to assert a claim for punitive damages, and a proposed amended complaint alleging bad faith by the Insurance Company.

The Insurance Company allegedly ignored information in its own file confirming coverage for her claim, used faulty data when it denied the claim, failed to conduct a proper investigation of the claim, misrepresented the policy and coverages afforded under the policy, and refused to issue payment for coverage under the policy to restore the property to its pre-loss condition.

Appellant claimed she suffered actual damages including but not limited to attorney’s fees, public adjuster’s fees, expert fees, loss of use and decrease in value of her property, loss of enjoyment of her property, damaged credit, and general damages.

She supported her claim because the Insurance Company-as a business practice-misrepresented pertinent facts or insurance policy provisions relating to coverages at issue, intentionally omitted language to mislead insureds and avoid paying claims and failed to properly investigate claims.

Appellant provided examples of three other similar claims. Appellant presented copies of letters from the Insurance Company to two other insureds that were similar in substance to that which it sent to Appellant-denying coverage and misrepresenting the terms of their policies by changing and omitting the language that would trigger coverage. In the third example, Appellant presented excerpts from the deposition testimony of a corporate representative of the Insurance Company stating it did not retain an engineer to properly inspect reported damage on another claim prior to denying coverage.

The trial court found there had to be a showing of frequency of a general business practice of more than three other claims for punitive damages to be asserted and that the Insurance Company’s misrepresentation was a mistake. The trial court denied Appellant’s motion for leave to amend her complaint to assert a claim for punitive damages.

ANALYSIS

A rigorous standard is applied to a motion for leave to amend a complaint to assert a punitive damages claim. Before allowing a punitive damages claim to satisfy his initial burden by means of a proffer, the statute contemplates that a claimant might obtain admissible evidence or cure existing admissibility issues through subsequent discovery.

Punitive damage amendments by statute the burden of proof at trial and provides that a defendant may be held liable for punitive damages only if the trier of fact, based on clear and convincing evidence, finds that the defendant was personally guilty of intentional misconduct or gross negligence.

It is not whether the wrongful business practice has already been proven, but whether the plaintiff made a sufficient showing by evidence in the record or proffer to establish a reasonable basis for it to ultimately be found that the defendant engaged in the wrongful conduct as a business practice.

What is required is a reasonable showing by evidence in the record or proffered by the claimant which would provide a reasonable basis for recovery of such damages. The appellate court concluded that Appellant’s actual evidence and proffered evidence reasonably demonstrated an indication that the Insurance Company misrepresented coverage and failed to properly investigate claims as a general practice, in reckless disregard for the rights of its insureds.

“Intentional misconduct” means that the defendant had actual knowledge of the wrongfulness of the conduct and the high probability that injury or damage to the claimant would result and, despite that knowledge, intentionally pursued that course of conduct, resulting in injury or damage.

The Court of Appeals concluded that there were reasonable inferences and sufficient circumstances submitted to plead intentional misconduct. The trial court was required to determine whether Appellant offered reasonable evidence of a misrepresentation, not whether the mistake was intentional. The trial court erroneously made a factual determination at the pleading stage. The trial court’s order was reversed.

ZALMA OPINION

There is no excuse for an insurer to lie to the insured. If, as alleged, the insurer intentionally lied to the insured about available coverages and did so as part of a normal business practice to at least three more insureds, it can be subject to punitive damages in Florida. If the Appellant proves her allegations the insurer will be punished for its wrongdoing.

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Insurer Protects its Insured with a Settlement

Posted on August 16, 2023 by Barry Zalma

No Right to Change After Agreeing to a Settlement

INSURER’S INSTIGATION OF SETTLEMENT IS EVIDENCE OF GOOD FAITH

See the full video at https://rumble.com/v37vbgy-insurer-protects-its-insured-with-a-settlement.html and at https://youtu.be/-78ab8np6n8

After parties to a suit resolved the suit by settlement one or more of the parties tried to renege on the agreement and appealed the trial court’s order to enforce the parties’ settlement agreement. The parties’ settlement agreement required them to dismiss all claims, counterclaims, and crossclaims with prejudice. In Shorewood Forest Utilities, Inc. v. Rex Properties, LLC and Don Blum, No. 22A-PL-2345, Court of Appeals of Indiana (August 11, 2023) the Court of Appeals resolved the claims concerning the Settlement Agreement.

FACTS AND PROCEDURAL HISTORY

Shorewood is a nonprofit corporation that provides sewer service to more than 1000 residents in Porter County. Rex Properties is a property developer, and Blum is the sole managing member of Rex Properties. In 2017, Shorewood and Rex Properties entered into an agreement for Shorewood to expand into a new Rex Properties development and service the homes there according to certain terms, rates, and fees. Not long thereafter, Shorewood concluded that its agreement with Rex Properties was not enforceable, and Shorewood declined to participate in the project.

By mid-2019, the only claim remaining in the instant cause was Rex Properties’ approximately sixteen-million-dollar counterclaim against Shorewood for breach of contract. Shorewood sought to amend its complaint to allege claims of fraud, fraud in the inducement, unjust enrichment, and criminal deception against Rex Properties. In March 2020, the trial court permitted Shorewood’s requested amendment.

In the spring and summer of 2020, the parties attempted to settle out of court. On June 8, counsel for Shorewood sent counsel for Rex Properties an email stating that Shorewood’s insurance carrier, Stratford Insurance, had agreed to pay Rex Properties $950,000 for Shorewood and Rex Properties to settle and dismiss all claims, counterclaims, and crossclaims in this cause.

Mr. Blum approved the settlement with the terms set forth in the offer email.

Over the next several weeks, the parties’ attorneys worked on drafting a Settlement Agreement. Counsel drafted an agreement but Shorewood refused to sign it. Accordingly, Rex Properties filed a Motion to Enforce Settlement Agreement on the ground that the June 8 email exchange represented an enforceable agreement between the parties whereby Stratford Insurance would pay Rex Properties $950,000 and, in exchange, Shorewood and Rex Properties would dismiss all claims in this cause with prejudice.

THE ISSUES

The central issue in this appeal is whether the email exchange between the parties on June 8 represented the offer and acceptance of an enforceable settlement agreement. The trial court concluded that the parties’ June 8 email exchange created an enforceable settlement agreement.

Shorewood had made an offer, Rex Properties accepted the offer, there was more than ample consideration between them and Stratford Insurance, and all parties had a meeting of the minds over definite and certain essential terms.

Shorewood claims that Stratford Insurance colluded with Rex Properties and somehow kept Shorewood “in the dark and uninformed” about the “terms, conditions, requirements, and payments” to be made to Rex Properties.

The trial court’s denial of Rex Properties’ motion for judgment on the pleadings and its motion for summary judgment resulted in a settlement agreement between Shorewood and Rex Properties, and their settlement rendered the trial court’s prior judgments moot.

The trial court’s judgment was affirmed.

ZALMA OPINION

Courts invariably prefer settlement agreements. Insurers, like Stratford, prefer settlements. In this case Stratford put up almost $1 million to settle, the parties agreed by e-mail and an agreement to memorialize the agreement with a formalized agreement. The contract was made by the e-mail exchange of offer, acceptance and consideration. The formalized agreement was not necessary and the good work of the insurer resulted in a solution to an extensive case and protected its insured.

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Zalma’s Insurance Fraud Letter – August 15, 2023

Posted on August 15, 2023 by Barry Zalma

Issue 27 Number 16: ZIFL-08-15-2023

See the full video at https://rumble.com/v37he6w-zalmas-insurance-fraud-letter-august-15-2023.html and at https://youtu.be/x0EJFKVdjwQ

Lawyer Paying for Clients Guilty

Experienced Lawyer Claiming Ignorance of Law Is No Defense

Robert Irving Slater was a practicing worker’s compensation attorney when he entered into an agreement with the owner of USA Photocopy who paid a third party to perform intake interviews with clients of defendant’s practice, saving a significant amount of his lawyer’s own employees time and money. In exchange, defendant used USA Photocopy’s services during all workers’ compensation proceedings on those cases.

Read the full article and the full ZIFL at http://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-08-15-2023-1.pdf

More McClenny Moseley & Associates Issues

This is ZIFL’s Twelfth installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be an effort to profit from what some Magistrate and District judges indicate may be criminal conduct to profit from insurance claims relating to hurricane damage to the public of the state of Louisiana.

Read the full article and the full ZIFL at http://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-08-15-2023-1.pdf

Free Insurance Videos

Barry Zalma, Esq., CFE has published five days a week videos on insurance claims, insurance claims law, insurance fraud and insurance coverage matters at https://www.rumble.com/zalma.https://rumble.com/c/c-262921.

Good News From the

Alex Murdaugh accomplice Russell Laffitte gets 7 years for fraud. He will spend seven years in federal prison for helping convicted murderer Alex Murdaugh steal nearly $2M from clients’ legal settlements. Laffitte was sentenced Tuesday after a jury found him guilty of six charges related to wire and bank fraud back in November. The ex-CEO of Palmetto State Bank became the first of the disgraced former attorney’s accomplices to face prison following the June 2021 shooting deaths that stemmed from sprawling investigations into the Murdaugh family finances. He used the role to elaborately pocket tens of thousands of dollars and collected as much as $450K in non-taxable fees. The position also allowed him to send large chunks toward Murdaugh, who had grown desperate to repay mounting loans as an opioid addiction further depleted his accounts. Despite his conviction, Laffitte continued to maintain his innocence. He has insisted for months that he didn’t know he was committing crimes and was manipulated by a major customer.

Read the full article plus many more convictions and the full ZIFL at http://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-08-15-2023-1.pdf

Moral Hazard

Every insurance fraud investigator must understand what a moral hazard is and why it is important to insurance underwriters.

The moral hazard is the increase in uncertainty caused by personal acts of individuals. These acts may contribute to the probability or severity of loss. The individual creating the problem may be the policyholder or another person. In either case the chance of loss is increased. A moral hazard may be present in every line of insurance. No underwriter can ignore it without incurring an increased risk of substantial loss. The moral hazard is very difficult to detect and therefore very dangerous to the insurer.

Read the full article and the full ZIFL at http://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-08-15-2023-1.pdf

Health Insurance Fraud Convictions

Former CEO of Whittier Clinic Pleads Guilty to Defrauding Medi-Cal Family Planning Program Through Multimillion-Dollar Scheme

Vincenzo Rubino, 58, of Valencia, the former president and CEO of a Whittier medical clinic pleaded guilty August 3, 2023, to submitting fraudulent billings to a Medi-Cal health care program and two counts of aggravated identity theft.

According to evidence presented at trial, Rubino founded, owned, and operated Santa Maria’s Children and Family Center, a Whittier-based medical clinic based registered as a non-profit public benefit corporation and enrolled as a Family Planning, Access, Care and Treatment (Family PACT) provider run through Medi-Cal.

Read the full article and the full ZIFL at http://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-08-15-2023-1.pdf

Another Insurer Bites the Dust

Missouri’s Cameron Mutual Placed into Rehabilitation

Cameron Mutual Insurance Company and its wholly owned subsidiary, Cameron National Insurance Company, were placed into rehabilitation in the second week of August 2023 by the Circuit Court of Cole County, Missouri. Missouri Department of Commerce and Insurance (DCI) Director Chlora Lindley-Myer was named rehabilitator for both companies.

Read the full article and the full ZIFL at http://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-08-15-2023-1.pdf

Other Insurance Fraud Convictions

Nassau County, NY, Collision Repair Shops Owner Convicted of Tax Fraud

Jose Cardona, 45, of Oceanside, NY, was sentenced August 2, 2023, for felony tax fraud related to his ownership and operation of two Nassau County collision repair shops, New York State officials announced.

In Nassau County State Supreme Court, Cardona was sentenced to six months in jail and five years of probation, after having already paid more than $700,000 in restitution.

Read the full article and the full ZIFL at http://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-08-15-2023-1.pdf

It’s Time to Subscribe to Locals or Substack

For Subscribers Only I Have Published Special Insurance Articles and Videos

I published on Locals.com more than 25 videos and two webinars of the Excellence in Claims Handling program. I also published on Substack.com videos and webinars of the Excellence in Claims Handling Program available only to Subscribers.

Read the full article and the full ZIFL at http://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-08-15-2023-1.pdf

Barry Zalma

Over the last 55 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Barry Zalma, Inc., 4441 Sepulveda Boulevard, CULVER CITY CA 90230-4847, 310-390-4455; 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. Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; I publish daily articles at https://zalma.substack.com, 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 the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ to consider more than 50 volumes written by Barry Zalma on insurance and insurance claims handling.

Go to Zalma’s Insurance Fraud Letter at https://zalma.com/zalmas-insurance-fraud-letter-2/ 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/ and GTTR at https://gettr.com/@zalma

Read the full article and the full ZIFL at http://zalma.com/blog/wp-content/uploads/2023/08/ZIFL-08-15-2023-1.pdf

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Strict Compliance With Warranty Required

Posted on August 14, 2023 by Barry Zalma

Promissory Warranty Must Be Fulfilled

See the full video at https://rumble.com/v369fc6-strict-compliance-with-warranty-required.html and at https://youtu.be/GrGnBnXB1b8

Ralph Young owned and lived on a seventy-four-foot motor operated vessel named the SUMMER STAR (“the vessel”). Mr. Young insured the vessel with Yachtinsure Services, Inc. from 2013 through 2019. On August 28, 2019, the vessel ran aground and was destroyed when Hurricane Dorian hit St. Thomas in the United States Virgin Islands, where the vessel was moored. Yachtinsure rejected the abandonment and denied Mr. Young’s claim, based on what it considered his material misrepresentations in his April 2019 policy renewal application.

As a result the USDC was asked to resolve an issue of the voidability of a marine insurance policy under principles of federal maritime law. The Insured pursued a claim for breach of contract against the Insurer, based on the insurer’s refusal to pay for damage sustained by Plaintiff’s insured vessel during a hurricane in August of 2019.

In Transpac Marine, LLC v. Yachtinsure Services, Inc., Civil Action No. 20-10115-DPW, United States District Court, D. Massachusetts (February 13, 2023) followed the precedent establishing the inviolability of a promissory warranty.

BACKGROUND

Yachtinsure asserts counterclaims for declaratory judgment seeking judgment that Mr. Young’s insurance policy was void as a matter of law and that Yachtinsure had no obligation to pay damages or the benefits promised by the policy.

Mr. Young’s Renewal Application

On April 16, 2019, Mr. Young applied for the renewal of his marine insurance policy to Yachtinsure to renew his existing policy, Mr. Young was obligated to submit an updated application form and a Hurricane Plan for review by Yachtinsure’s underwriters.

The Hurricane Plan included a warranty by Mr. Young that the vessel will be secured with “10 lines, 3/4 inch Nylon braid.” The applicant was warned that the Hurricane Plan contains “statements upon which underwriters will rely in deciding to accept this insurance” and that the Hurricane Plan “will form the basis of” any insurance contract between the parties. The declaration also stated that misrepresentation or nondisclosure of material facts “may entitle underwriters to void the insurance.”

After an inquiry from the insurer Mr. Young confirmed that in the event of a named/numbered storm, mooring lines will be doubled. Mr. Young’s email representation that he would double the mooring lines on the vessel in the event of a named windstorm was incorporated into his policy agreement with Yachtinsure.

Events Preceding the Destruction of the Vessel

During an examination under oath conducted by Yachtinsure Mr. Young testified he decided to sail to Crown Bay in St. Thomas, U.S. Virgin Islands where the storm was expected to pass with windspeeds below thirty-miles-per-hour. Mr. Young resolved to wait out the storm. On August 26, he purchased two, new, one-inch diameter mooring lines from the local chandlery in preparation for the storm. Beyond securing the vessel with those two additional mooring lines and moving upholstery below deck, Mr. Young made no further safety preparations. On August 28, 2019, the storm, by then named Hurricane Dorian, changed its trajectory and struck the Virgin Islands. By the time he learned that the storm would hit the Virgin Islands Mr. Young determined sailing away from the Virgin Islands to be unsafe. Instead, he decided to remain moored to a single mooring in Crown Bay, secured by six lines, four of unspecified diameter and two of a one-inch diameter.

Just after noon, high winds from Hurricane Dorian parted Mr. Young’s mooring lines, causing the vessel to drift out to sea. However, the anchor’s chain became entangled with a sailboat operated by a third-party mariner, Dan Radulewicz. Thereafter, as alleged, Mr. Radulewicz disconnected Mr. Young’s anchor gear causing the SUMMER STAR to be swept up in the storm. The vessel eventually ran aground on the lee shore about four miles from Crown Bay. Mr. Young was airlifted from the wreck by the United States Coast Guard.

Plaintiff’s Claim and Defendant’s Denial

Mr. Young filed a claim declaration with Yachtinsure on September 3, 2019.

DISCUSSION

The Supreme Court held in Norfolk S. Ry. Co. v. Kirby, that “federal law controls the contract interpretation” of a marine insurance policy when the contractual dispute at issue “is not inherently local,” observe that the First Circuit has held that there is a judicially established federal rule governing the particular area of marine insurance contract interpretation relevant: whether an insured’s representations in the policy constitute unambiguous, promissory warranties which, if breached, excuse the insurer from coverage.

The court found the Hurricane Plan to be unambiguous. The plain language of Mr. Young’s answer to Question 15 cannot be reasonably read to convey anything other than that Mr. Young would use ten lines of 3/4 inch Nylon braid to secure the vessel. Mr. Young’s response to Question 15 of the Hurricane Plan states unambiguously that he will secure the vessel with the configuration of mooring lines he specified in his response.

Mr. Young responded to the Hurricane Plan with what is, in essence, a stipulation that he would secure the SUMMER STAR with the mooring configuration he identified when the policy took effect and during its continuance. Thus, this provision of the Hurricane Plan constitutes an unambiguous promissory warranty to secure the SUMMER STAR with ten nylon mooring lines that were 3/4 inch diameter in normal circumstances (i.e., in the absence of a named or numbered storm) and with 20 in a named and numbered storm.

Consequences of Breach of Promissory Warranties

Under both federal law and New York law, a breach of a promissory warranty will permit the insurer to void a marine insurance contract. Simply material compliance will not satisfy the insured’s obligations. The weight of authority holds this strict compliance requirement applicable even to “collateral” warranties unrelated to the insured’s claims for damages.

Plaintiff’s Breach

The court concluded that Yachtinsure established beyond reasonable factual dispute that Mr. Young failed to meet his obligation of strict compliance with his warranties under the Hurricane Plan.

Mr. Young’s admission that he did not use twenty 3/4 inch nylon braid lines to secure his boat during Hurricane Dorian – and thereby satisfy a prophylactic condition the policy called for – is sufficient to prevent him from recovering under the policy.

Summary judgment granted to Yachtinsure.

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Refusal to Pay Starts Running of Limitation of Action

Posted on August 11, 2023 by Barry Zalma

Private Limitations of Action Provision of Policy Defeats Late Law Suit

See the full video at https://rumble.com/v3687fq-refusal-to-pay-starts-running-of-limitation-of-action.html and at https://youtu.be/cpSdLOHexUU

Knox Mediterranean Foods, Inc. (Knox) appealed the trial court’s grant of Appellee Amtrust Financial Services (Amtrust)’s motion for traditional summary judgment on Amtrust’s affirmative defense of limitations. In one issue, Knox contends that summary judgment was improper because there was a genuine issue of material fact as to when its claim accrued.

In Knox Mediterranean Foods, Inc. v. Amtrust Financial Services, No. 05-21-00296-CV, Court of Appeals of Texas, Fifth District, Dallas (July 28, 2022) the Court of Appeals interpreted the private limitations of action provision in the Amtrust policy.

BACKGROUND

Knox owns and operates a restaurant in Dallas, Texas. Knox purchased an insurance policy from Amtrust that covered various losses, including theft. The policy provides that any claim for breach of the policy must be brought “within two years and one day from the date the cause of action accrues.” The policy defines accrual of a cause of action as “the date of the initial breach of [Amtrust’s] contractual duties as alleged in the action.”

On June 16, 2016, Knox was burgled. Knox submitted a claim to Amtrust under the policy and provided a list of damaged and stolen property. On March 15, 2017, Amtrust issued a check to Knox in the amount of $8,547.65, along with a letter from an Amtrust claim adjuster stating that the check covered stolen camera equipment. On June 13, 2017, Amtrust sent a follow-up letter. This letter states, in relevant part: “We have requested supporting documentation for the other items you claimed multiple times. At this time, it has become apparent you do not intend to provide any additional documentation. Pursuant to my letter of 3/15/2017 we are closing this claim for possible contents damage with no additional payment.”

On May 20, 2020, almost three years later, Knox filed suit against Amtrust. Amtrust defended claiming that Knox’s claims were barred by the private limitations of action provision set forth in the policy. Amtrust argued that Knox’s cause of action accrued on June 13, 2017 when Amtrust notified Knox that it was “closing this claim for possible contents damage with no additional payment.”

The trial court entered a written order granting summary judgment and ordering that Knox take nothing on its claims.

DISCUSSION

While Knox’s brief wholly fails to cite the record, the record comprises 425 pages, roughly 300 of which is the insurance policy. The sole issue in this appeal required the Court of Appeals to consider whether Amtrust’s June 13 letter constituted a denial of Knox’s claim. That letter is a little over a page long and easily located in the record.

LIMITATIONS

The time in which a plaintiff must file suit is defined, as the name suggests, by statute. Parties may contract for a shorter limitations period, provided that the contractual limitations period is not shorter than two years.

A cause of action accrues, and the limitations period begins to run when facts come into existence that authorize a party to seek a judicial remedy. In first-party insurance actions, the insured’s cause of action accrues when the insurer denies a claim.

There is no dispute that the insurance policy at issue sets a limitations period of two years and one day from the date of accrual. Although an insurer’s denial must be in writing to trigger the statute of limitations, there are no magic words that must be used to deny a claim. Any statements or activity on the part of the insurance company after the fact involving the claim do not forestall or renew the limitations period.

When an insurer denies a claim, its mere willingness to reconsider that denial does not restart the limitations period.

Therefore, Amtrust’s June 13 letter to Knox unequivocally communicated a decision to deny coverage.

Amtrust established as a matter of law that Knox’s claim accrued-and the contractual limitations period began to run-on June 13, 2017. Because Knox filed this lawsuit on May 20, 2020, nearly three years after its claim accrued, its claim was time-barred.

ZALMA OPINION

The covenant of good faith and fair dealing applies to the insurer and the insured equally. When an insured fails or refuses to prove its loss it leaves the insurer no choice but to deny the claim rather than continue to beg the insured to fulfill its promises. Since Knox did nothing for almost three years after it was told Amtrust would pay no more its suit was time barred.

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No Fortuity No Coverage

Posted on August 10, 2023 by Barry Zalma

Sexual Abuse of a Child is, by Definition, an Intentional Act

See the full video at https://rumble.com/v35z29k-no-fortuity-no-coverage.html and at https://youtu.be/wf8yDEGN5Pk

Gustavo Beltran, Alma Beltran, and child A.B. appealed the district court’s pretrial adjudication of their counterclaims against Farmers Insurance Exchange (Farmers). In. A.B., Gustavo Beltran, and Alma Beltran v. Agave Health, Inc.; et. al.; Farmers Insurance Exchange, et al., No. A-1-CA-39620, Court of Appeals of New Mexico (August 1, 2023) the Court of Appeals resolved the dispute by considering whether the acts alleged were fortuitous.

BACKGROUND

The Appellants sued Manuel and Delfina Preciado (the Preciados) alleging that Manuel sexually abused A.B. and that Delfina negligently failed to supervise A.B. while he was in the Preciados’ foster care service. The Preciados stipulated to the entry of money judgments, and Farmers- which insured the Preciados with a homeowner’s insurance policy-filed a complaint in intervention for declaratory judgment seeking a determination of no indemnity coverage under the policy for the claims against the Preciados.

The district court granted the summary judgment motion, finding that the insurance policy did not cover the claims based on Manuel’s intentional conduct.

DISCUSSION

The district court granted Farmers’ motion to dismiss for failure to state a claim pursuant to the finding that Appellants lacked standing to bring their counter complaint against Farmers and that the acts complained of were intentional.

The Court of Appeal concluded that Farmers had a right to refuse the insurance claim without exposure to a bad faith claim because it successfully challenged the coverage of Appellants’ claim in its motion for summary judgment. In the order granting summary judgment, the district court found that the policy at issue was “an occurrence policy, which applies, for coverage purposes, only to accident and non-intentional behavior.”

The insurance policy had an unambiguous exclusion to the insurance policy. The exclusion stated that the policy does not cover “bodily injury, property damage, or personal injury arising from, during the course of or in connection with the actual, alleged, or threatened molestation, abuse or corporal punishment of any person by anyone, including . . . any insured.”

Any injuries or damages arising from Delfina’s negligent supervision stemmed from the uninsured risk of sexual misconduct, and thus there was no duty to defend a claim for negligent supervision.

The district court properly found that the policy’s unambiguous exclusion precluded coverage for claims against the Preciados, including for the acts of Manuel and the negligent supervision against Delfina, thus Farmers had the right to refuse to settle the claim without exposure to a bad faith claim.

ZALMA OPINION

Liability insurance is, by definition, a contract of indemnity for unintentional and fortuitous acts. Allowing coverage for intentional conduct, like the abuse of a child, would encourage people to commit such evil conduct because there would be no financial effect to the abuser.

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A Lawyer by Any Other Name is Still a Lawyer

Posted on August 9, 2023 by Barry Zalma

NY USDC Eliminates Insurer’s Attorney Client Privilege

See the full video at https://rumble.com/v35ps8o-ny-usdc-eliminates-insurers-attorney-client-privilege.html and at https://youtu.be/ZNvX6jBKK78

A Lawyer is not a Super Adjuster

I became a lawyer in 1972. Before that I was an insurance adjuster and investigator. Since 1972 I have never been, nor acted as, an adjuster or an investigator. Of course, part of being a lawyer requires some investigation because failing to do so would be a breach of the fiduciary duty of a lawyer to his or her client.

I learned immediately upon entering law school, and later in the practice of law, that an attorney’s failure to investigate potential defenses constitutes a denial of effective assistance of counsel. [Owsley v. Peyton, 368 F.2d 1002, 1003 (4th Cir. 1966); Kibert v. Peyton, 383 F.2d 566, 569 (4th Cir. 1967); McLaughlin v. Royster, 346 F.Supp. 297 (E.D.Va.1972); Cf. Caudill v. Peyton, 368 F.2d 563 (4th Cir. 1966); Wood v. Zahradnick, 430 F.Supp. 107 (E.D. Va. 1977). In fact, as the Supreme Court of Oregon stated: “To fulfill the role assigned to defense counsel under our adversarial system of criminal justice, a lawyer must investigate the facts and inform himself or herself with respect to the law ‘to the extent appropriate to the nature and complexity of the case[.]’ Krummacher v. Gierloff, 290 Or. 867, 875, 627 P.2d 458 (1981),” [Burdge v. Palmateer, 338 Or. 490, 112 P.3d 320 (Or. 2005)]

The attorney-client privilege protects the client from disclosure of private communications with counsel. Communications from a lawyer to his client conveying legal advice and giving information to the lawyer to enable him to give sound and informed advice is always privileged. [Upjohn Co. v. United States, 449 U.S. 383, 390 (1981); M&T Bank Corp. v. State Nat’l Ins. Co. (W.D. N.Y. 2020). The investigation conducted by a lawyer as part of his or her duty to properly represent a client is the work of a lawyer and is, and should always be, protected by the attorney client privilege and the work product protection.

Some Privileges are More Equal Than Others

With regard to insurance matters some courts have ignored the duties owed by a lawyer to the client and have eliminated the attorney client privilege and the work product protection for most documents created by those lawyers who provide advice to insurers. For most of the more than 45 years I have been involved providing legal advice to insurers I have been accused of being a “super adjuster” rather than a lawyer to allow insureds to gain an advantage against an insurer, and gain access to the private legal advice given to the represented insurer. The attorney client privilege belongs to the client, not the lawyer, and can be waived by the client but not eliminated.

In Cadaret Grant & Co. v. Great American Insurance Company, No. CV 21-6665 (GRB)(AYS), United States District Court, E.D. New York (July 25, 2023) the USDC decided to compel an insurer to produce documents that include the legal advice provided by a lawyer to an insurer since it concluded that the lawyer involved with the requested documents was acting as an investigator or adjuster rather than as a lawyer.

The documents at issue revealed that as early as April of 2019, GAIC had retained outside counsel Graziano to discuss claims under the Bond. The USDC outlined the issue before it as follows: “New York courts are often faced with deciding claims of attorney-client privilege in the context of insurance coverage disputes. Central to such privilege decisions is the issue of whether outside counsel is performing the role of a claims investigator, or that of an attorney offering legal advice. Documents reflecting claims investigation activities are subject to discovery even if those activities were performed by an attorney.”

The Work Product Doctrine

The work product protection is the lawyer’s, unlike the attorney client privilege that applies to the client. Protection does not exist for documents that are prepared in the ordinary course of business or that would have been created in essentially similar form irrespective of the litigation.

The Decision

The Cadaret Grant & Co court refused to provide the attorney client privilege to documents created by the lawyer except a document that showed the lawyer, Graziano’s, legal analysis and opinions. It contains legal advice and the court concluded is therefore primarily legal, rather than investigatory in nature. It, and only it, was determined to covered by the attorney client privilege. The court was wrong and should be reversed if the insurer is able to seek appellate relief.

ZALMA OPINION

A lawyer giving legal advice to an insurer faced with a claim is required, to properly serve his or her client, to conduct a thorough legal investigation into the issues presented by the insurer for assistance and legal advice. That advice can include many different things, including suggestions for continuing investigation by the insurer, but none changes the lawyer into an investigator or a claims adjuster. Had counsel sat silent and only wrote a coverage opinion without using his or her skill, legal knowledge and training to obtain, directly or by asking for additional information, to prepare the coverage opinion that the court found was privileged but all other documents were not, is in error.

The Cadaret opinion is an insult to the lawyer who acted as a coverage lawyer. The lawyer needed to obtain sufficient information from the insurer client so that he or she could provide a thorough, well-reasoned and researched coverage opinion that was not within the ken of the insurance adjuster who had enough knowledge and experience to recognize that he or she needed the assistance and legal analysis of an experienced insurance coverage lawyer. The “super adjuster” theory that no investigative work of a lawyer can be part of the lawyer’s analysis that is protected by the attorney client privilege and/or the work product protection is simply in error and a false conclusion.

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The Spoons Ran Away With Insurance Money

Posted on August 9, 2023 by Barry Zalma

No Right to Insurance Proceeds After Sale of Property

See the full video at https://rumble.com/v35go9a-the-spoons-ran-away-with-insurance-money.html and at https://youtu.be/fPt_f24Cq0E

NO INSURABLE INTEREST

Thomas Spoon and Maria Spoon appealed from the Pulaski County Circuit Court order granting summary judgment in favor of Chester Lee Bolds and Linda Bolds in the Boldses’ civil suit for damages related to insurance proceeds because the Spoons did not own the damaged house at the time of the alleged loss.

In Thomas Spoon And Maria Spoon v. Chester Lee Bolds And Linda Bolds, 2023 Ark.App. 244, No. CV-22-277, Court of Appeals of Arkansas, Division II (April 26, 2023) the Spoons’ claimed entitlement to insurance proceeds paid on an insurance claim on a house after the Spoons sold the house to the Boldses.

The Boldses purchased the Spoons’ house by warranty deed on July 2, 2020. In November 2020, the Boldses filed an insurance claim because they discovered the roof was leaking. The Boldses’ insurance coverage would not pay because there was preexisting damage to the roof. The Boldses then filed a claim against the Spoons’ homeowner’s insurance. That insurer accepted the claim but paid the money in dispute ($5,219.48) to the Spoons. When the Spoons failed to turn the money paid on the insurance claim over to the Boldses they sued raising claims of breach of contract, declaratory judgment, and unjust enrichment.

The Spoons also contended they were entitled to the money because they were the owners of the property at the time of loss. They claim that unjust enrichment cannot equitably apply because the Boldses did not pay for the insurance policy.

The court’s order found that any and all interest the Spoons may have had in the house was terminated and extinguished upon the sale of the house to the Boldses, and it ordered the Spoons to reimburse the Boldses for the roof repairs.

ANALYSIS

Arkansas law is well settled that summary judgment is to be granted by a circuit court only when there are no genuine issues of material fact to be litigated, and the party is entitled to judgment as a matter of law.

If one has money belonging to another, which, in equity and good conscience, he ought not to retain, it can be recovered although there is no privity between the parties.

It was undisputed that the Spoons received the insurance money that was distributed for repair of the roof of a house they no longer have an interest. Unjust enrichment amounted to an alternative, independent basis for the circuit court’s ruling, which has gone unchallenged by the Spoons. Accordingly the Boldses were entitled to the reimbursement.

ZALMA OPINION

It is axiomatic that to obtain benefits from an insurer the person insured must have an insurable interest in the property at the time of the loss. Since the loss occurred after the Spoons sold the property to the Boldses their insurable interest was eliminated. They should have recovered nothing, but they were paid by their insurer who decided it was better to pay than fight over a small claim. The Spoons had no right to the money and since the Boldses suffered the loss they were allowed to recover the money paid by the insurer to the Spoons since it would be wrong to profit from the error of the insurer because the Spoons incurred no loss.

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Hurricane Warranty Sinks Claim

Posted on August 8, 2023 by Barry Zalma

“The Hello Dolly” Was Not Where the Owner Promised it Would be When it Sunk in Breach of Warranty

See the full video at https://rumble.com/v35g82o-hurricane-warranty-sinks-claim.html and at https://youtu.be/F89a8YjR6R0

Great Lakes Insurance, S.E. insured the Hello Dolly VI, a boat owned by Gray Group Investments, L.L.C. The Hello Dolly sank in Pensacola, Florida, during a hurricane. Gray Group filed a claim under the insurance policy, Great Lakes denied coverage, and Great Lakes then sought a declaratory judgment that it properly did so.

In Great Lakes Insurance, S.E. v. Gray Group Investments, L.L.C., No. 22-30041, United States Court of Appeals, Fifth Circuit (August 1, 2023) Hurricane Sally struck the Gulf Coast in September 2020. In its path lay the Hello Dolly VI (hereafter, the Vessel), which was moored behind Gray Group’s eponymous member Michael Gray’s house in Pensacola, Florida. The Vessel sustained damage during the storm and sank at its mooring. Great Lakes denied coverage, asserting that Gray Group had breached several warranties.

The Warranties

Great Lakes contended that Gray Group breached the “hurricane protection plan” (the HPP) that Gray Group had submitted in response to Great Lakes’s “hurricane questionnaire” (the HQ). The HQ requested the Vessel’s location during hurricane season and asked a series of questions regarding Gray Group’s contingency plans in the event of a hurricane. In the HPP, Gray Group stated that the Vessel would be located at the Orleans Marina in New Orleans, Louisiana, and detailed the protective measures Gray Group would take when a hurricane approached. At the time the Vessel sank it was not even near Louisiana nor did Gray Group comply with the HPP.

Gray Group moved for judgment on the pleadings. The district court denied the motion, holding that the phrase application for insurance was ambiguous because it could refer solely to the Application Form, or to a broader set of documents inclusive of the HQ and the HPP. The district court found that evidence outside the pleadings was necessary to determine the meaning of “application for insurance.”

The district court agreed with Great Lakes and granted it summary judgment. Specifically, the district court held that the phrase “application for insurance” was ambiguous but that extrinsic evidence showed that the parties intended “application for insurance” to encompass the HPP. Continuing the analysis, the court concluded that Gray Group’s statement in the HPP that the Vessel was to be located at the Orleans Marina during hurricane season was also ambiguous. Resorting to extrinsic evidence, the court found that the HPP meant that the Vessel would be moored at the Orleans Marina for the majority of hurricane season. The court determined that the HPP’s “marina or residence” location constituted a warranty by Gray Group and found that the Vessel had not in fact been moored at the Orleans Marina for the majority of hurricane season. Gray Group had thus breached its warranty, justifying Great Lakes’s denial of coverage.

ANALYSIS

The Great Lakes insurance policy at issue incorporated in full the application form signed by Gray Group. The policy also incorporated in full Gray Group’s application for insurance.

The Court of Appeals of New York has long recognized the concept of incorporation by reference. For nearly as long as New York has recognized incorporation by reference, its Court of Appeals has allowed parol evidence to prove the identity of the paper that the parties attempted to incorporate.

Gray Group’s HPP, with its representation that the Vessel’s “marina or residence” location during hurricane season was the Orleans Marina, was included in the policy’s ambiguous incorporation of Gray Group’s application for insurance.

Under a bolded header labeled “WARNING,” the HQ, which prompted Gray Group’s submission of the HPP, advised that “this declaration and warranty shall be incorporated in its entirety into any relevant policy of insurance.” Therefore, the district court did not err in holding that the extrinsic evidence was “so one-sided that no reasonable person could decide” that the HPP was not incorporated into the policy. The district court concluded that the HPP’s representation regarding the Vessel’s “marina or residence” location meant “the place where the [V]essel [was] to be moored the majority of hurricane season.”

The district court concluded that the HPP’s representation regarding the Vessel’s “marina or residence” location was a warranty such that Gray Group’s breach of it voided the policy. The Hello Dolly VI never got to where she belonged. Gray Group’s representations to the contrary were validly incorporated into the policy as warranties, and Gray Group’s breach of its warranties justified Great Lakes’s denial of coverage when the Hello Dolly sank.

ZALMA OPINION

A warranty is a promise made by an insured that must be kept in its entirety for the policy to be effective. When, during hurricane season the Vessel was docked in Florida rather than the promised marina in Louisiana, with special protections from hurricanes, the promise was not kept and the warranty was breached, not only did the vessel sink, the breach of warranty sunk the claim.

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Suit Fails for Failure to Read Policies

Posted on August 7, 2023 by Barry Zalma

Delivery of Policy Starts the Running of the Statute of Limitations

See the full video at https://rumble.com/v34dg8r-suit-fails-for-failure-to-read-policies.html and at https://youtu.be/XZ8OoBJtlkI

Wooten purchased seven Northwestern Mutual insurance policies. Three are disability income policies. Four are various whole-life policies. Wooten purchased and reviewed the last of the policies in December 2005. He sued claiming he was deceived about what he bought ten years before the suit.

In Wrenn Wooten v. The Northwestern Mutual Life Insurance Company, Jimzara, And Patrick Matthews, No. 05-20-00798-CV, Court of Appeals of Texas, Fifth District, Dallas (July 31, 2023) the Court of Appeals resolved Wooten’s complaint that the trial court’s grant of summary judgments in favor of appelees, was wrong.

BACKGROUND

On April 17, 2018 Wooten sued. He alleged he was sold policies based on misrepresentations on coverage and benefits, wrongfully advised him, and concealed misrepresentations.

Wooten bought the disability policies to provide income if he became disabled and unable to work in his present capacity of MRI radiologist. Wooten alleged Zara misrepresented that the policy would provide disability income even if he were able to work in another field. Wooten also alleged the disability policies were unsuitable because they did not contain a waiver-of-premium term, contrary to Zara’s misrepresentations “and/or” omissions. He alleged a waiver-of-premium term would have allowed him to receive disability income without paying premiums. Wooten has not filed a disability claim under the policies.

The suit alleged claims for fraud, negligent misrepresentation, breach of fiduciary duty, and violations of the Texas Insurance Code and the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA).

Wooten alleged he did not discover the injury “and/or” misconduct that forms the basis of this lawsuit until within two years of his filing the lawsuit. The trial court granted Northwestern Mutual’s traditional motion for summary judgment. The trial court did not state a ground upon which it granted the traditional motions

STATUTE OF LIMITATIONS

Wooten alleged causes of action with two- and four-year periods of limitation. The statute of limitations for Wooten’s claims for negligent misrepresentation and for violation of the Texas Insurance Code and the DTPA is two years.

The court concluded that the appellees carried their summary judgment burden of conclusively proving Wooten’s claims for violations of the Insurance Code and DTPA, negligent misrepresentation, and fraud accrued at the time Wooten purchased each policy.

Much to the surprise of Mr. Wooten and most insureds, an insured has a duty to read the policy, and failing to do so, is charged with knowledge of the policy’s terms and conditions. When the insured receives the written policy, it has sufficient facts in its possession to seek a legal remedy based on an alleged misrepresentation about policy terms by the insurer.

Appellees conclusively demonstrated Wooten purchased his last Northwestern Mutual policy in December 2005. The longest applicable statute of limitations for his claims on that policy-and all his policies-is four years. Wooten’s claims for fraud, negligent misrepresentation, breach of fiduciary duty, and violations of the Texas Insurance Code and the DTPA are barred by limitations-unless Wooten was otherwise authorized to subsequently file his lawsuit and timely did so.

The Discovery Rule

An injury is not inherently undiscoverable when it is the type of injury that could be discovered through the exercise of reasonable diligence. Wooten testified he reviewed each of the life insurance policies and disability insurance policies when they were delivered to him. Summary judgment evidence conclusively demonstrated that Wooten actually reviewed the policies. Wooten knew, or should have known, at the time he bought the policies-and when he reviewed the policies-that they did not provide the coverage or benefits appellees allegedly misrepresented.

Consequently, appellees conclusively demonstrated in the trial court that the alleged injuries are not “inherently undiscoverable” and that the discovery rule does not apply.

Even in a breach of fiduciary duty case where a fiduciary’s misconduct is inherently undiscoverable, a breach of fiduciary duty claim accrues when the claimant knows or in the exercise of ordinary diligence should know of the wrongful act and resulting injury. The Court of Appeals concluded that by 2005, at the latest, Wooten knew, or exercising reasonable diligence, should have known of the facts giving rise to the cause of action.

An insurance agent has no duty to explain policy terms to an insured. Instead, an insured has a duty to read the policy, and failing to do so, is charged with knowledge of the policy terms and conditions.

Therefore, appellees carried their summary judgment burden to conclusively prove Wooten’s last claim accrued in December 2005 and to negate applicability of the common-law discovery rule to his common-law claims of fraud, negligent misrepresentation, and breach of fiduciary duty.

ZALMA OPINION

An insured has a duty to read a policy to confirm that it received the coverage the sales person represented. Although Wooten was neither dead or disabled, he sought damages against the insurer and sales persons when, ten years late, he found the policies did not cover the events he was promised. He sat on his rights well past the running of every applicable statute of limitations.

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