Lawyer Admonished

Title Policy Terminated Regardless of Counsel’s Misconduct Making Personal Attacks on the Court and Counsel

See the full video at https://rumble.com/v1z81vg-lawyer-admonished.html  and at https://youtu.be/FFf7TM7t0VA

Jay Shah appealed from a judgment entered in favor of Fidelity National Title Insurance Company after the trial court granted summary judgment. After two trials and a second appeal the Court of Appeals dealt with improper and contumacious conduct by plaintiff’s counsel. In Jay C. Shah v. Fidelity National Title Insurance Company, A165816, California Court of Appeals, First District, First Division (November 30, 2022) resolved the title insurance issue based on the evidence and California Codes and precedent.

BACKGROUND

In 1959, non-party Mary Silva acquired a life estate in the property that is the subject of this action near Quimby Road in San Jose, California (the property). In December 1995, Shah entered a contract to purchase the property from Silva for $350,000. Silva transferred her interest in the property via a grant deed to “Jay C. Shah, Living Trust Dated June 8, 1993,” (the Trust) as grantee. When he purchased the property, Shah did not know that Silva held only a life estate.

Fidelity issued the title insurance policy in connection with Shah’s 1995 purchase. The title policy was effective December 29, 1995. Schedule A of the title policy listed the named insured as the Trust. The title policy stated that the “estate or interest in the land described herein and which is covered by this policy is: A Fee.”

Suit Against Fidelity

The trial court granted Fidelity’s motion for summary judgment and determined Shah’s motion for summary adjudication was moot. The court concluded that Fidelity met its burden to show coverage terminated under section 2(b) of the title policy before Shah’s 2009 tender because Shah had voluntarily transferred the property to his parents in 2002, and the transfer became effective by operation of law in May 2007 when Shah obtained fee title through adverse possession, under the after acquired title doctrine (Civ. Code, § 1106).

The Court of Appeal, concluding that it was not at liberty to rewrite the policy to achieve the result Shah sought & Fidelity met its initial burden to demonstrate coverage under the title insurance policy terminated under section 2(b) when Shah voluntarily transferred the property to his parents in the 2002 grant deed and subsequently acquired fee title by adverse possession in May 2007. Because Shah failed to present evidence raising a triable issue of material fact, Fidelity was entitled to judgment as a matter of law on Shah’s causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing.

CIVILITY

In addition to deciding the insurance issue the California Court of Appeal concluded, in an unusual addition to the opinion, that they were obligated to admonish Shah’s counsel, Craig J. B., for making repeated, unfounded personal attacks on the trial court and opposing counsel in his appellate papers, apparently because he disagreed with the trial court’s decision. To illustrate, the Court of Appeal quoted a few excerpts from the opening and reply briefs that were damning.

Excerpts

About the court:

“Thus far, the trial court has favored Fidelity because that court does not understand, and refuses to learn, the principles of the law applicable to the facts of this case. The lower court unlawfully sides with the wrongdoer and throws Shah out the courtroom door, twice now!”

“The lower court wrests [the] holding [of Marriage v. Keener, supra, 26 Cal.App.4th 186], misrepresents it, and misuses it to knowingly err to achieve a preconceived outcome harmful to Shah. It wanted to vindicate the judge of the same court who in error prejudicially sustained Fidelity’s demurrer to Shah’s FAC on the same erroneous grounds, despite the successful appeal and reversal of that decision.”

“In rendering its decision on the MSJ [(motion for summary judgment)], the lower court acted like a magical mystery trial had been held without a jury while Shah was in absentia and that it was decided based on one single document alone ….”

“The duplicity of the lower court, however, exposes its pervasive error.”

“The lower court’s short-sighted derogation of the policy of the law explained above and its total disregard for the relevant statutes in order to achieve a wrongful outcome to favor the title insurance industry and knowingly harm the innocent insured, twice now, means that something is terribly wrong and that the courts have lost their way.”

“The lower court knowingly erred here to protect itself rather than enforce the law as was its sworn duty.” The trial court “refuses to get the facts straight, refuses to interpret the clause properly, and refuses to follow the law.”

About defendant, and by implication, opposing counsel:

“Because it knows that it can with success, as this case proves, engage in bad faith insurance tactics to seduce gullible courts who have little experience and no training in such matters ….”

“Is it not the goal here to consider and discover the truth, the whole truth, and nothing but the truth drawing inferences from and accepting evidence in the light most favorable to Shah? Why would Fidelity think itself above this law? Because it believes it is a law unto itself not subject to the law so that it can in bad faith seek exoneration on spurious grounds when its liability is clear. The sophistry of Fidelity cannot be passed off as truth in this proceeding.”

“This court should respect and adopt [Shah’s] absolutely correct analysis, no matter what bag of tricks, lies, and misdirection Fidelity throws at the Court at this juncture, which is all that Fidelity has done judging by the content of its respondent’s brief.”

These quotes were a sampling of the numerous inappropriate arguments scattered throughout counsel’s briefs. Perhaps not surprisingly, these unhelpful remarks are unsupported by any evidence in the record. Such bombastic, ad hominem attacks have no place in an appellate brief and are potentially contemptuous and sanctionable behavior.

The Court of Appeal further noted that:

“[d]isparaging the trial judge is a tactic that is not taken lightly by a reviewing court. Counsel better make sure he or she has the facts right before venturing into such dangerous territory because it is contemptuous for an attorney to make the unsupported assertion that the judge was ‘act[ing] out of bias toward a party.'” (In re S.C. (2006) 138 Cal.App.4th 396, 422.)

The Court of Appeal noted that “ironically, the extremely argumentative nature of his two briefs on appeal makes it more time-consuming for this court to sift through the unjustified personal attacks and hyperbolic rhetoric to get to the legal issues that need to be resolved.”

For counsel’s benefit the Court of Appeal repeated the admonition of the Board of Governors of the State Bar that:

attorneys have an obligation to be professional with . . . other parties and counsel, [and] the courts …. This obligation includes civility, professional integrity, personal dignity, candor, diligence, respect, courtesy, and cooperation, all of which are essential to the fair administration of justice and conflict resolution.” (Cal. Atty. Guidelines of Civility &Professionalism (July 20, 2007) Introduction., p. 3; id., § 4, p. 5 [“An attorney should not disparage the intelligence, integrity, ethics, morals or behavior of the court or other counsel, parties or participants when those characteristics are not at issue. [¶] . . . [¶] . . . An attorney should avoid hostile, demeaning or humiliating words.”].) The kind of conduct displayed in counsel’s appellate briefing “not only disserves the individual involved, it demeans the profession as a whole and our system of justice.” Rather, counsel must “strive for the highest standards of attorney behavior to elevate and enhance our service to justice.” (Ibid.) [emphasis added]

The Court of Appeal strongly admonished plaintiff’s counsel to conduct himself in a more professional manner when appearing before the Court of Appeal or any other court and noted that such conduct in a future case may subject him to sanctions much harsher than the warning.

ZALMA OPINION

The insurance issue was resolved with a detailed analysis that clearly established that Fidelity owed nothing to Shah. The reason for this article is to point out that the Court of Appeal was kind to plaintiff’s counsel by only admonishing his conduct. Lawyers, should never get emotionally involved in their cases and, when they lose at trial, should never question the integrity of the court or opposing counsel, only the law and the facts. A dispute over a Title Insurance Contract is a legal issue that was resolved by the Court of Appeal by review of the facts and the applicable statutory law and precedent. For an appellate court to add the warnings it did is quite unusual. The Court, in my opinion, should have done more than admonish counsel and issued more than a warning.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications at substack at substack.com/refer/barryzalma

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

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

Posted in Zalma on Insurance | Leave a comment

Insured Must Reside at Dwelling

Summary Judgment Fails for Lack of Convincing Evidence

See the full video at https://rumble.com/v1z0b75-insured-must-reside-at-dwelling.html and at https://youtu.be/_ff00ZPeJ6Y

Plaintiff Craig Finch owns parcels of real property in Broome County, New York, the relevant ones for our purposes being one on Kennedy Road (hereinafter the subject premises) and another on Bishop Road. A single-family home was situated on the subject premises, while a second home was situated about 1,000 feet away on the Bishop Road property. The homeowner’s insurance policy for the subject premises was procured through defendant Erie Insurance Company and named Finch as the insured. Erie contended Finch did not live at the Dwelling and denied his claim on that ground.

In Craig Finch v. Erie Insurance Company, No. 534429, 2022 NY Slip Op 06851, Supreme Court of New York, Third Department (December 1, 2022) Erie appealed the denial of its Motion for Summary Judgment and a New York Appellate Court resolved the dispute.

FACTS

A fire seriously damaged the subject premises on the evening of November 22, 2016. Plaintiff notified defendant of the loss, stating that warm ashes in a vacuum cleaner on the back porch had caused the fire, and the ensuing investigation conducted on defendant’s behalf confirmed that the fire was accidental and had begun on the back porch. The investigator did not determine the cause of the fire but could not rule out the vacuum cleaner.

Defendant disclaimed coverage upon the grounds that plaintiff did not reside at the subject premises as required and that, by installing a pellet stove where the warm ashes had originated, he had substantially increased the hazards present there.

Finch sued alleging that Erie had breached the insurance contract by disclaiming coverage.

Both parties moved for summary judgment. The trial court denied the motion and cross motion, and Erie appealed.

ANALYSIS

Defendant, as the party seeking to disclaim coverage on the ground that plaintiff did not reside at the subject premises, bore the burden of establishing that the exclusions or exemptions apply and that they are subject to no other reasonable interpretation.

The policy provides coverage “for loss to… [plaintiff’s] dwelling at the residence premises,” with the latter term defined as “the dwelling where [plaintiff] reside[s].” What constitutes a residence is not defined in the policy and is therefore construed against defendant as the insurer, but it is well settled that residency requires something more than temporary or physical presence and requires at least some degree of permanence and intention to remain.

A person may have only one domicile but more than one residence for insurance purposes, and the question of whether a person resides in a given location is a fact-driven inquiry that depends on the totality of the circumstances.

Erie came forward with proof suggesting that plaintiff did not reside at the subject premises, including that he had primarily lived at the Bishop Road property for almost a decade prior to the fire, that his sister resided at the subject premises in return for her making the mortgage payments and covering other expenses, and that he had expressed an intent to transfer ownership of the subject premises to her, all serious indicators that he did not reside at the dwelling.

The record, the appellate court concluded, made it clear that plaintiff continued to have significant connections to the subject premises, however, and that he gave conflicting accounts of what his actual plans were for it.

For example, plaintiff testified that the subject premises had been his parents’ residence, that he was living there with them when he purchased it around 2001, and that it has consistently been occupied by either him or his family members. Plaintiff testified that he performed all maintenance and repairs at the subject premises while his sister was living there, as well as that he continued to both keep many personal belongings and receive mail there at the time of the fire. Plaintiff also made clear that he was at the subject premises every day for both maintenance and recreation reasons and that he could and did sleep there on occasion.

Although plaintiff did testify that he aimed to transfer ownership of the subject premises to his sister once she paid off the mortgage, he also gave conflicting testimony in which he stated that he wanted to move back there after he “g[o]t [his] sister set,” and he explained in an affidavit that his plan was to do so after rehabilitating the home on the Bishop Road parcel for his sister’s use.

The trial court established plaintiff’s family connections to the subject premises, his continued use of and presence at the subject premises, and his conflicting statements as to his future plans regarding the subject premises reveal questions of fact as to whether he satisfied the residency requirement of the insurance policy that would preclude summary judgment on that point. Evidence at trial may result in a completely different result.

The order was affirmed.

ZALMA OPINION

The residence requirement has been ignored by insurance agents, insurance brokers and people seeking homeowners insurance. As a result, many suits, like that filed by Finch keep finding their was to the trial and appellate courts. The evidence presented by Finch established that the dwelling was his domicile since he received mail there and spent much time at the dwelling. It was not, however, his residence and was the residence of his sister. The entire dispute would have been resolved if Finch had the policy name as an insured, his sister, and add himself as an additional insured. He did not. At trial the insurer will need to produce evidence that Finch did not “reside” at the premises where the fire occurred.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications at substack at substack.com/refer/barryzalma

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

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

Posted in Zalma on Insurance | Leave a comment

Only Insureds Entitled to Defense or Indemnity

Representative of Five Dead Seek to Hold Owner of Vehicle’s Insurer Responsible for Deaths and Injuries

See the full video at https://rumble.com/v1yia3q-only-insureds-entitled-to-defense-or-indemnity.html and at https://youtu.be/0TqInNwGXkM

In Motorists Commercial Mutual Insurance Company v. Roger Hartwell; Lynnway Auto Auction, Inc., Safety Insurance Company; et. al.  Nos. 21-1603, 21-1636, United States Court of Appeals, First Circuit (November 23, 2022) the plaintiff claimed it owed neither defense nor indemnity to persons not insured by it to claims that a vehicle the named insureds’ owned while driven by the employee of an auctioneer killed five people and injured many.

FACTUAL BACKGROUND

The dispute arose from an auction at which a motor vehicle being displayed for bidding suddenly accelerated into a group of attendees, killing five and injuring many others. Motorists Commercial Mutual Insurance Company (“Motorists”), which insured the dealership that owned the vehicle, sued seeking a declaration that its policies do not cover the auctioneer or its employee who was behind the wheel of the vehicle when it struck the victims. Defendants include those who claim an interest in Motorists’ coverage: the victims, the auctioneer, and its employee. Both sides moved for summary judgment. The district court granted the motion for summary judgment in favor of Motorists.

Nashua Automotive, LLC is a New Hampshire car dealership that sells new and used cars. It is owned by a dealership group called AutoFair, Inc. and operates under the name “AutoFair Volkswagen of Nashua.” (“Nashua.”)

While Nashua sells most of their vehicles “retail” (to the public), about 8% or 9% of their revenues come from vehicles sold “wholesale” (online or at an auction). For its vehicles sold wholesale, Nashua primarily engages with a company called Lynnway Auto Auction, Inc., which operates an auction facility in Billerica, Massachusetts. Neither AutoFair nor Nashua owns Lynnway, and Lynnway does not own Nashua or AutoFair.

In April 2017, Nashua received a 2006 Jeep Grand Cherokee as a trade-in for a new vehicle it sold. Nashua arranged for Lynnway to auction the Jeep. On May 3, 2017, while that Jeep was being put up for auction inside Lynnway’s Billerica facility, it accelerated into a crowd, causing multiple serious injuries and five deaths.

At the time of the accident, Lynnway employee Roger Hartwell was seated in the driver’s seat of the Jeep, though he claims that the vehicle accelerated uncontrollably despite his efforts to stop it.

In due course, the victims and their estates filed a series of lawsuits in Massachusetts state court, alleging several theories of liability against Lynnway, Hartwell, Nashua and AutoFair, as well as other related individuals and entities.

Of the various insurance companies whose policies may be implicated by those underlying claims, this case concerns only one: Motorists Commercial Mutual Insurance Company. Motorists provided a liability policy (the “Primary Policy”) that covered AutoFair, Nashua, and other AutoFair-affiliated dealerships as named insureds, but did not name Lynnway or Hartwell among the insureds. Motorists also provided a so-called “Commercial Umbrella” policy (the “Umbrella Policy”), which provided supplemental insurance above the Primary Policy’s limits to many of the same named insureds, including Nashua and AutoFair.

THE MOTORISTS’ POLICIES

The Primary Policy includes a “Garage Coverage Form”. This form was modified by a New Hampshire Changes in Policy endorsement (the “New Hampshire Endorsement”).

The New Hampshire Endorsement changed the definition of “Who Is An Insured” such that it includes “[a]nyone else while using with your permission a covered ‘auto’ you own . . . except . . . [s]omeone using a covered ‘auto’ while he or she is working in a business of selling, servicing or repairing ‘autos’ unless that business is yours.”

The Umbrella Policy, in turn, provides further coverage for bodily injuries, but contains an “Automobile Liability -Following Form” endorsement, which provides: “Except as coverage is available to you in the underlying policies as set forth in the Schedule of Underlying Insurance, this policy does not apply to the ownership, maintenance, operation, [or] use . . . of any automobile while away from premises owned by, rented to, or controlled by you.”

The Umbrella Policy also defines “who is an insured” for that policy, which specifically excludes “[a]ny person employed by or engaged in the duties of an auto sales agency . . . that you do not operate.”

Motorists sought a declaratory judgment that its policies do not provide coverage for the victims’ claims against Lynnway and its employee. Defendants include Lynnway and Hartwell (the “Lynnway defendants”) and the accident victims who brought the state-court suits (the “victim defendants”). All defendants moved for summary judgment, prompting a cross-motion from Motorists. Motorists pointed to the auto business exclusion which Motorists contended foreclosed coverage under the Primary Policy. It also argued that its Umbrella Policy’s Following Form Endorsement provides auto coverage that is no broader than that provided for in the Primary Policy.

The district court agreed with Motorists on all scores, granting summary judgment in its favor.

ANALYSIS

It is axiomatic that interpretation of an insurance policy is a question of law. An appellate court starts its analysis by examining the plain and ordinary meaning of the words in context to construe the policy’s terms as would a reasonable person in the position of the insured based on more than a casual reading of the policy as a whole.

On appeal, both the Lynnway defendants and the victim defendants contended that the coverage provided by the broad insuring clause of the Primary Policy survives that policy’s auto business exclusion as well as its suspended license exclusion. They also insist that the Umbrella Policy separately provides coverage.

The parties agreed that Lynnway and Hartwell are covered under the Primary Policy unless one of the two exclusions relied upon by Motorists applies. As modified by the New Hampshire Endorsement, that exclusion excepts from the definition of insureds “[s]omeone using a covered ‘auto’ while he or she is working in a business of selling, servicing or repairing ‘autos’ unless that business is yours.” The “yours” in this language refers to a named insured – in this case, Nashua. Lynnway’s Articles of Incorporation describe it as “a general automobile auction business” whose purpose is “to auction, sell and distribute automobiles” and “[t]o engage in the business of purchasing, . . . [and] selling . . . all types of new and used automobiles.”

The First Circuit opined that someone engaged in an auction business is engaged in a selling business.

The language at issue plainly aims at making sure that coverage does not extend in general to persons or entities working in any business of selling autos, while at the same time carving out an exception. The issue posed here is the reach of that exception. Clearly it preserves coverage for Nashua and its employees. Construing the “business” that is “yours” to mean Nashua’s business enterprise — i.e., its dealership that sells autos – fully accomplishes this aim.

No reasonable insured that procured the policy would have any interest in paying for a policy that provided coverage for another person who works for another unrelated seller of autos. Lynnway retained its own insurance policies, the providers of which have conceded the availability of coverage. The fact that Hartwell was employed by and subject to the control of Lynnway reinforces the conclusion that he was not working in Nashua’s business.

The First Circuit concluded, therefore, that the Primary Policy’s auto business exclusion defines the policy’s insureds so as to exclude Lynnway and Hartwell from coverage for the underlying claims here.

Defendants next contended that the Umbrella Policy provides coverage for the underlying claims. The phrase “follow form” refers to the practice, common in excess policies, of having the second-layer coverage follow substantively the primary layer provided by the main insurer. Given that the underlying Primary Policy does not cover the claimed liabilities neither does the Umbrella Policy and the judgment of the district court was affirmed.

ZALMA OPINION

The five deaths and multiple injuries prompted a search for every possible insurance coverage to allow the availability to the victims of sufficient funds to indemnify the victims of the runaway Jeep. The attempt was understandable. The arguments were not. The First Circuit read the entire policy, applied the facts of the accident and the relationships of the persons involved and necessarily found that the Motorists policies provided no coverage for the auctioneer and the driver of the Jeep. The analysis was clear, logical and applied the clear and unambiguous meaning of the policy and its exclusion.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications at substack at substack.com/refer/barryzalma

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

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

Posted in Zalma on Insurance | Leave a comment

Time & Expense of Failed Bad Faith Set-Up

In Maryland if Policy Limits are Offered Before Trial There Can Be No Bad Faith

See the full video at https://rumble.com/v1yb7ke-time-and-expense-of-failed-bad-faith-set-up.html and at https://youtu.be/B__sDmH4qtI

When a seriously injured person is injured by a person with a policy providing minimal limits the plaintiff’s lawyer will invariably attempt to set up the insurer for a bad faith case by making a policy limits demand with a short period of time to respond. In David Grant Orndorff v. Erie Insurance Exchange, No. 1318-2021, Court of Special Appeals of Maryland (November 21, 2022) Mr. Orndorff had a leg amputated as a result of an accident and sought to set up Erie Insurance, the other driver’s insurer.

David Grant Orndorff (“Mr. Orndorff”) was seriously injured when the motorcycle he was riding struck another vehicle attempting to make a left turn. The driver was insured by Erie Insurance Exchange (“Erie”) under a policy with a liability coverage limit of $30,000. Five months after the accident, Mr. Orndorff rejected Erie’s offer of its insured’s policy limits in full settlement of his claims against the insured. Two years later, when Mr. Orndorff sued Erie for bad faith in failing to settle sooner, the Circuit Court for Prince George’s County granted summary judgment to Erie.

BACKGROUND

Two days after the accident, on October 17, 2016, the driver of the other vehicle (Erie’s insured) reported the accident to Erie. Erie then assigned a claims adjuster who began a thorough investigation of the claim the next day.

One week into the investigation, on October 25, 2016, the claims adjuster received a message from Mr. Orndorff’s retained counsel requesting that all correspondence go to her. On November 3, 2016, the claims adjuster reviewed the accident report. The report indicated that Erie’s insured was cited for “failing to yield right of way” and that Mr. Orndorff had “exceeded the speed limit” and thereby contributed to the accident. The adjuster informed Orndorff’s counsel:

Erie has received the police report which indicates your client contributed to the accident by speeding. I would suggest he have his own insurance company handle if he has not done so already. I am trying to reach the witness to confirm our final liability decision but as MD is a contributory negligence state, your client may be barred from recovery against our insured.

Maryland has not adopted comparative negligence. If an injured person contributes to the accident – for example by speeding – he or she cannot recover anything because of his or her contributory negligence.

On November 8, 2016, thirty-four days after the accident, Mr. Orndorff demanded that Erie settle his claim” . . . for the full insurance policy, or any and all insurance policy or policies covering your insured for this accident.” Mr. Orndorff (perhaps as part of a plan) did not supply any of the requested documents or description of his injuries that Erie said were necessary to determine liability and settle the claim. Mr. Orndorff indicated he would release Erie’s insured from liability if Erie delivered a check no later than 5 p.m. EST on December 8, 2016.

On November 21, 2016, Erie denied Mr. Orndorff’s claim because its investigation showed that Mr. Orndorff was speeding and contributed to the accident.

Mr. Orndorff’s Motor Tort Complaint

On January 9, 2017, Mr. Orndorff sued Erie’s insured in the Circuit Court for Prince George’s County and later served Erie’s insured. On January 30, 2017, Mr. Orndorff’s counsel emailed the claims adjuster that all prior settlement offers were withdrawn and that its insured had been served.

On March 17, 2017, Erie, through the attorney assigned to represent its insured in the motor tort suit, offered to settle Mr. Orndorff’s claim for the full limit of the insured’s policy. On April 26, 2017, having not heard from Mr. Orndorff, Erie reiterated its policy limits offer to Mr. Orndorff.

Mr. Orndorff’s motor tort suit having been bifurcated between liability and damages, a jury found Erie’s insured liable for Mr. Orndorff’s injuries. Specifically, the jury found that Erie’s insured was negligent, and that Mr. Orndorff was not contributorily negligent.

The Liability-Only Trial Aftermath

On October 27, 2017, Erie again offered its insured’s policy limits to settle Mr. Orndorff’s claim against Erie’s insured. Mr. Orndorff did not accept this offer.

Before the trial on damages Plaintiff’s counsel notified the circuit court that they had settled Mr. Orndorff’s claim with the entry of consent judgment against Erie’s insured for $2,870,000; an assignment of the insured’s claims against Erie (if any) to Mr. Orndorff; and Mr. Orndorff’s promises (1) to forbear on collection efforts while the assigned claims against Erie were pending, and (2) to file an Order of Satisfaction once litigation of the assigned claims (including appeals) was over

This Case

On October 15, 2019, Mr. Orndorff sued Erie claiming that Erie had acted in bad faith in refusing Mr. Orndorff’s November 2016 demand.

On March 29, 2021, Erie filed a motion for summary judgment arguing that it had acted in good faith (not bad) in attempting to negotiate a settlement of Mr. Orndorff’s claim within its insured’s policy limits.

What Plaintiff asked the Court to do is to allow plaintiffs to control bad faith in the sense that a plaintiff could go to the end with an insurance company. An insurance company could offer policy limits on the eve of trial and the – – in cases where they offered it at eve of trial, the plaintiff, under the circumstances, could reject it and go forward, get an excess judgment, and then come back, presumably on behalf of the insured, and say, “hey, they didn’t offer the policy limits before we got this judgment.”

The trial Court did not find bad faith and concluded there was no breach of contract by the insurance company to its insured. Erie offered its policy limits. It offered its policy limits well before any judgment was entered against Erie’s insured. It offered the limits well before any trial occurred. So, this claim could have been resolved at an earlier time by the Plaintiff. The Plaintiff elected not to accept the offer of the policy limits and chose to pursue its claim against Erie’s insured.

The appellate court decided that the insurance company should not be at the mercy of what the Plaintiff wants to do.

DISCUSSION

Genuine disputes can arise from “predicate” facts or from the inferences that may reasonably be drawn from those predicate facts. The motions court found that Mr. Orndorff made a demand on Erie to settle for its insured’s policy limits in late October or November 2016, a demand that Erie denied. This denial was not in bad faith because it was based on the information Erie had at the time. By March 17, 2017, Erie had gathered more information and “had come around” to the determination that its insured was liable. Erie offered its insured’s policy limits in full settlement, but Mr. Orndorff refused the offer.

Once an insurer undertakes to defend its insured on a claim, the insurer’s wrongful failure to settle the claim is a claim in tort, not contract. The possibility of liability in tort does not mean that an insurer must settle all claims against its insured.

An insurer does not have an absolute duty to settle a claim within policy limits, although it may not refuse to do so in bad faith. An insurer’s decision to reject a settlement will be in “good faith” if the decision consists of an informed judgment based on honesty and diligence.

The appellate court was aware of no case, and Mr. Orndorff cited none to the court, in which a jury was permitted to determine an insurer’s good (or bad) faith in settling (or not settling) a claim where, as in this case, the insurer offered its insured’s policy limits in full settlement prior to its insured being at risk of an excess judgment.

Even if Erie could be said to have acted in bad faith by denying Mr. Orndorff’s November 2016 demand, Erie’s subsequent offer of policy limits before its insured faced the risk of an excess verdict meant that Erie did not act in bad faith in attempting to settle Mr. Orndorff’s claim against Erie’s insured.

Ultimately the circuit court did not err in granting summary judgment in favor of Erie. Erie’s subsequent offer of its insured’s policy limits, an offer made well before its insured faced the risk of an excess verdict, foreclosed any claim by Mr. Orndorff, the insured’s assignee, that Erie had acted in bad faith.

ZALMA OPINION

Erie had a good reason to deny the claim because Maryland still follows contributory negligence rather than what most states have adopted: comparative negligence. Regardless, when it did further investigation Erie offered its full policy limits multiple times only to have the plaintiff turn the offers down and insist on going to trial on the tort claim. Eventually, the Plaintiff made a deal with Erie’s insured to agree to a $2,870,000 judgment it promised to not collect from the tortfeasor but only from his insurer. Mr. Orndorff received the $30,000 limit and cost Erie much to defend two lawsuits that did not need to be filed or tried. The court should have considered sanctions on plaintiff’s counsel.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications at substack at substack.com/refer/barryzalma

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

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

 

 

Posted in Zalma on Insurance | Leave a comment

No Indemnity for Old Damage

Minnesota Statute Does not Require Insurer to Pay to Bring Church Property up to Code From Damage Predating Loss

See the full video at https://rumble.com/v1y416g-no-indemnity-for-old-damage.html  and at https://youtu.be/M64VGQhH9so

St. Matthews Church of God and Christ (St. Matthews) is located in St. Paul, Minnesota sued State Farm Fire and Casualty Company (State Farm) who insured St. Matthews. The policy provided replacement cost coverage for damage to St. Matthews’s buildings.

In St. Matthews Church of God and Christ v. State Farm Fire and Casualty Company, No. A21-0240, Supreme Court of Minnesota (November 23, 2022) St. Matthews sought payment for damaged masonry wall when covered peril only damaged drywall covering the masonry that was cracked as a result of old age.

FACTS

In June 2017, a storm damaged the property of St. Matthews, including the building’s drywall. State Farm agreed to cover repair costs for the damaged property caused by the storm, including removal and replacement of the damaged drywall. When the damaged drywall was removed, cracks in the masonry were discovered. There is no dispute that the cracks in the masonry preexisted the storm. However, because the cracks in the masonry violated the city’s building code, the City of St. Paul (City) would not allow St. Matthews to replace the drywall without also repairing the masonry. St. Matthews requested that State Farm reimburse it for the cost of repairing the masonry.

At issue is the interpretation and application of Minn. Stat. § 65A.10, subd. 1 (2020) (“the statute”). The statute requires replacement cost insurance to cover the cost of repairing any “damaged property in accordance with the minimum code as required by state or local authorities.” In “the case of a partial loss,” replacement cost insurance is required to cover only “the damaged portion of the property.”

St. Matthews’s policy provided replacement cost coverage, meaning that, in the event of a loss, the insurer agreed to compensate for that loss without taking into account depreciation. State Farm’s typical policy does not require it to cover the cost of bringing property that is lost or damaged up to code. But the policy issued to St. Matthews included a Minnesota Endorsement, which states, in relevant part:

If this coverage is provided on a replacement cost basis we will pay the increased cost of replacing, rebuilding, repairing or demolishing any building in accordance with the minimum code in force at the time of loss as required by state or local authorities, when the loss or damage is caused by a Covered Cause Of Loss. In case of a partial loss to the covered property, we will pay only for the damaged portion of the property. (emphasis added)

By December 2018, State Farm paid St. Matthews $107,053, an amount that included the cost of replacing and repairing the drywall.

St. Matthews was required to obtain a building permit from the City to make the necessary repairs, including replacing the drywall. The City was concerned about the defects in the existing masonry wall which rendered the wall out of code. St. Matthews subsequently requested State Farm to pay the cost of bringing the masonry up to code. In response, State Farm hired a consultant to evaluate the damaged masonry and determine the cause of damage. The consultant concluded that the “cracked and out-of-plumb condition . . . was a longterm condition unrelated to the storm ….”

On cross-motions for summary judgment, the district court granted summary judgment to State Farm.

ANALYSIS

The parties agree that the damaged property at issue is a partial loss and that, before the drywall can be repaired, St. Paul’s city code requires that the masonry be repaired sufficiently to bring it in accordance with minimum code.

The statutory language “[i]n the case of a partial loss . . . this coverage applies only to the damaged portion of the property” is susceptible of only one reasonable interpretation. In the event of a partial loss, the insurer’s obligation is limited to bringing up to code that “portion of the property” that was damaged.

The Supreme Court concluded that the statute means that, when a partial loss like St. Matthews suffered occurs, State Farm’s obligation to bring the damaged portion of the property up to minimum code is limited to repairs necessary to bring up to code that part of the property that was damaged in the insured event. Since it was undisputed that only the drywall was damaged in the storm. It was also undisputed that the masonry was damaged earlier as a result of a different, unknown cause. Consequently, State Farm was not required to pay for repairs to bring the masonry up to code under the statute.

Contrary to St. Matthews’s assertion that the drywall and the masonry were parts of a single damaged item: the wall; which includes both the drywall and the masonry, the masonry wall was independent of the masonry to which it was attached.

All parties agreed that the damage to the masonry was not caused or impacted by the storm. Accordingly, the damage to the masonry was not independently covered by State Farm’s policy. Viewing the project from the perspective of a drywall installer there was nothing in the condition of the masonry that prevented the installation of new drywall.

The Supreme Court concluded that under a plain reading of the statute in the case of a partial loss, replacement cost coverage applies only to the damaged portion of the property covered by a cause of loss. Only the drywall was damaged because of the storm, but the masonry was not. Therefore, only the damaged drywall is subject to the statute’s code-compliance provision.

Under the statute, when a partial loss occurs, an insurer’s obligation to bring the damaged portion of the property up to minimum code is limited to repairs necessary to bring up to code only that part of the property that was damaged in the insured event.

ZALMA OPINION

Insurance requires, by definition, to respond only to a contingent or unknown event. It cannot, and should not, respond to damage that preceded the date the policy came into effect from causes that were not caused by a peril insured against. Since the only damage by the storm was to the drywall and since both parties agreed that the damage to the masonry was not caused by the storm that damaged the drywall. Unfortunately for the church it did not acquire code compliance coverage and the statute it relied on was not as broad as the church desired.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications at substack at substack.com/refer/barryzalma

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

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

 

Posted in Zalma on Insurance | Leave a comment

Zalma’s Insurance Fraud Letter – December 1, 2022

ZIFL Volume 26, Issue 23

See the full video at https://rumble.com/v1xvyiu-zalmas-insurance-fraud-letter-december-1-2022.html and at https://youtu.be/Kt8eEl5e8Vs

The December 1, 2022 issue contains articles and reports of insurance fraud convictions for every insurance claims professional, SIU investigators and everyone interested in the efforts to defeat or deter insurance fraud. The December 1, 2022 issue includes:

It Doesn’t Pay to Try to Cheat Your Insurance Company

Sigismondi Foreign Car Specialists, Inc. appealed the U. S. District Court’s summary judgment in favor of State Auto Property and Casualty Insurance Company on State Auto’s declaratory judgment action and statutory insurance fraud claim.

In State Auto Property And Casualty Insurance Company v. Sigismondi Foreign Car Specialists, Inc., No. 21-2435, United States Court of Appeals, Third Circuit (November 18, 2022) the Third Circuit Court of Appeal dealt with the allegations of the insurer that Sigismondi attempted insurance fraud.

Read the full article at ZIFL-12-01-2022

New California Law Means New Obligations for Insurance Agents & Brokers

California Governor Gavin Newsom has signed into law Senate Bill 1242, written by the Senate Insurance Committee and aimed at protecting California consumers by imposing a variety of requirements upon producers.

The omnibus bill is essentially a kitchen sink of unrelated topics covered under a single piece of legislation. It takes effect on Jan. 1, 2023, and addresses, among other things, insurance fraud reporting and education mandates, fingerprinting and licensing disclosures.

Reporting Fraud

At the start of the year, agents and brokers will be required to report fraud to the California Department of Insurance (CDI). More specifically, SB 1242 amends the California Insurance Code to require producers who suspect or know a fraudulent application for insurance is being made to submit to the DOI Fraud Division via the electronic Consumer Fraud Reporting Portal information regarding the factual circumstances of a dubious application and the alleged misrepresentations it contains.

Read the full article at ZIFL-12-01-2022

Crime Doesn’t Pay – It Leads to Bankruptcy

North Carolina’s Wake County Superior Court judge ordered the liquidation of two life insurance companies in rehabilitation operated under billionaire insurance and finance executive Greg Lindberg. The judge approved the order to liquidate Colorado Bankers Life Insurance Co. and Bankers Life Insurance Co., which have been in rehabilitation since 2019. The companies were put into rehabilitation after questions arose about Lindberg’s alleged use of reserve funds to support other businesses he operated.

Read the full article at ZIFL-12-01-2022

Good News From the Coalition Against Insurance Fraud

A pain doc stuck patients with unneeded injections for knees and other body parts in a $240M scheme in San Antonio, Tex. Area. Dr. Jorge Zamora-Quezada falsely diagnosed patients with degenerative diseases such as rheumatoid arthritis. He gave them batteries of injections, invasive chemo and other toxic treatments they didn’t need. He earned a trip to the Coalition’s Insurance Fraud Hall of Shame in 2020 — and finally is scheduled for federal sentencing May 18. Zamora-Quezada kicked patients out of his office if they questioned his treatments and hid their records from docs the patients next saw. He also laundered the insurance money. And he bought a private jet, owned luxury properties in Aspen and other jet-set locales and bought a fleet of luxury cars. And Zamora-Quezada gave patients knee-buckling doses of chemo and other toxic treatments they didn’t need, all to keep insurance money flowing. Many patients — one aged just 13 — suffered serious physical and emotional damage from the chemo injections and sometimes hours-long intravenous infusions. Zamora-Quezada falsely diagnosed one man with rheumatoid arthritis. The patient later developed burns on his skin, lost both finger and toenails, and later began losing his skin from the toxic medications. His health problems continued until his death.

Read the full article about multiple insurance fraud convictions at ZIFL-12-01-2022

The Examination Under Oath Is Not a Replacement for the Insurance Claims Professional

An attorney is not an insurance adjuster. The attorney representing an insurer at an EUO is not a “super adjuster.” The attorney is a lawyer who was retained to provide legal advice and counsel after assisting the insurer in gathering facts at an EUO.

Competent outside adjustment services can be obtained for a great deal less per hour than any attorney. The EUO should complement, and be part of, the thorough investigation of the Insurance Claims Professional.

It should provide the information that the Insurance claims professional is unable to obtain because of the recalcitrance of the Insured, because of the lack of records, or because complex legal and factual issues have made resolution of the claim on an adjusting level impossible.

Read the full article at ZIFL-12-01-2022

Health Insurance Fraud Convictions

Florida Birth-Related Neurological Injury Compensation Plan and Association to Pay $51 Million to Resolve False Claims Act Allegations

The Florida Birth-Related Neurological Injury Compensation Plan and its administrator, the Florida Birth-Related Neurological Injury Compensation Association (collectively, “NICA”), have agreed to pay $51 million to resolve allegations that they violated the False Claims Act by causing NICA participants to submit their healthcare claims to Medicaid rather than NICA, in violation of Medicaid’s status as the payer of last resort under federal law.

The civil settlement resolves a lawsuit filed and pursued by Veronica N. Arven and the estate of Theodore Arven III against NICA under the qui tam or whistleblower provisions of the False Claims Act, which permit a private party (known as a relator) to file a lawsuit on behalf of the United States and receive a portion of any recovery. Although the United States did not intervene in this case, it continued to investigate the whistleblowers’ allegations, provided substantial assistance to the whistleblowers in defending against a motion to dismiss, and negotiated the settlement announced today. The Arvens will receive $12,750,000 as their share of the recovery in this case.

Read the full article about multiple insurance fraud convictions at ZIFL-12-01-2022

Post Loss Underwriting is Rare

When an insurer decides to rescind a policy of insurance it is often accused of “Post Loss Underwriting.” Although considered in some states, post loss underwriting is an oxymoron. Underwriting is the decision, based on information provided by a proposed insured, to accept the risk of certain losses needed by the proposed insured. Underwriting, by definition, must be conducted before a policy comes into existence except in the event when a policy is bound subject to a physical inspection of the property. If the inspection shows the risk to be other than that promised by the insured, the policy will be cancelled. Rescission, on the other hand, happens when an insurer learns, after a policy is written, that it was deceived by a material misrepresentation or a concealment of a material fact or by fraud.

Read the full article at ZIFL-12-01-2022

Other Insurance Fraud Convictions

Workers’ Compensation Fraud Convicted

Frances Davis pleaded guilty to one count of attempting to commit workers’ compensation fraud, a fifth-degree felony, and agreed to pay $17,144.79 in restitution, according to the Ohio Bureau of Workers’ Compensation. The BWC Special Investigations Department discovered that Davis potentially earned wages while collecting disability benefits from the BWC.

Davis, a Franklin County, Ohio woman was ordered to pay $17,000 in restitution she defrauded from the Ohio Bureau of Workers’ Compensation.

It was confirmed that while Davis was collecting benefits, she worked for seven different employers over the course of two years and held positions such as manager, assistant manager, packer, and machine operator.

A Franklin County judge found Davis guilty and sentenced her to five years of community control to pay the restitution as well.

Read the full article about multiple insurance fraud convictions at ZIFL-12-01-2022

It’s Time to Subscribe to Locals or Substack

For Subscribers Only I Have Published Special Insurance Videos

I published today on Locals.com Video Number 23 of the Excellence in Claims Handling program on Specific, Blanket and reporting coverages. I also published on Substack.com Video Number 9 of the Excellence in Claims Handling Program available only to Subscribers. The subscribes have access to all the videos and a webinar on “The Examination Under Oath A Tool Available to Insurers to Thoroughly Investigate Claims and Work to Defeat Fraud.”

The videos start with the history of insurance and work their way through various types of insurance and how to obtain and deal with insurance claims.

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

Subscribe to my publications at substack at substack.com/refer/barryzalma

Go to substack at substack.com/refer/barryzalma

Read the full article at ZIFL-12-01-2022

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications at substack at substack.com/refer/barryzalma

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

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

Posted in Zalma on Insurance | Leave a comment

COVID Ruined Ski Trip

INSURANCE POLICY TERMINATED BEFORE LOSSES

See the full video at https://rumble.com/v1xv3cm-covid-ruined-ski-trip.html  and at https://youtu.be/7bpnwLLeb6s

Plaintiffs lost the days they planned to ski at Vail in 2020. They are members of a certified class who purchased ski-pass insurance from Defendant United Specialty Insurance Company (“USIC”) for their 2019/2020 season ski passes to Vail Resorts. Vail Resorts shut down all of its resorts on March 15, 2020, because of the COVID-19 pandemic and did not reopen for the rest of the season.

In re: United Specialty Insurance Company Ski Pass Insurance Litigation, Ann C. Hoak; et al. v. United Specialty Insurance Company, and American Claims Management; Beecher Carlson Insurance, LLC, No. 21-16986, United States Court of Appeals, Ninth Circuit (November 22, 2022)

Plaintiffs attempted to recover for their lost ski days, relying on the “quarantine” provision of their insurance policy, but USIC denied their claims. The district court dismissed the complaint without leave to amend holding that Plaintiffs’ allegations did not support that they had been “quarantined” within the meaning of the insurance policy.

The Ninth Circuit, believing it found a better reason to rule in favor of USIC reviewed the “effective date of coverage” provision of the insurance policy. Plaintiffs’ insurance coverage terminated on March 15, 2020, the “effective date of coverage” provision made clear that coverage terminated on “the date upon which ski operations are ceased due to an unforeseen event” if that date is earlier than the scheduled end of the season, April 15, 2020.

Since ski operations ceased for the 2019-2020 season on March 15 when Vail Resorts closed all of its resorts and never reopened for that season. Operations ceased due to the spread of COVID-19, which was clearly an “unforeseen event” under the “ordinary and popular sense” of the term. The “effective date of coverage” provision thus makes plain that Plaintiffs cannot recover for any losses on or after March 15, 2020. Since the loss – the inability to ski at Vail – happened after March 15, 2020, there was no loss when the policy was in effect.

Contrary to Plaintiffs’ contentions, the separate “termination” provision, which automatically terminates coverage on the last day of the season, does not suggest that coverage could not end earlier under the “effective date of coverage” provision.

The Plaintiffs claimed that the policy’s “natural disaster” provision was rendered a nullity; it would allow for coverage in instances when all the resorts in a state closed indefinitely for a natural disaster but reopened one month later thus not ceasing ski operations altogether for the season which is not what eliminated the Plaintiffs desire to ski.

The trial court’s decision was affirmed.

ZALMA OPINION

The Ninth Circuit, unlike the Plaintiffs, the lawyers for the Plaintiffs, and the District Court, read the full policy and found that it did not matter whether the Plaintiffs were quarantined because their loss happened after the policy, by its terms, had expired.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications at substack at substack.com/refer/barryzalma

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

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

Posted in Zalma on Insurance | Leave a comment

Zing Zing’s Owner Barbecued

No Coverage for Theft by Persons Entrusted

See the full video at https://rumble.com/v1x3e74-zing-zings-owner-barbecued.html and at https://youtu.be/KQY7P3q0bCk

When the plaintiff turned her restaurant over to two restaurateurs when she became ill they took out all of the equipment of the restaurant and converted it to their possession. The restaurateurs  claimed they purchased the equipment from plaintiff and she claimed they took advantage of her illness and stole the property. She made a claim to her insurer, State Farm, who denied the claim because either cause alleged was due to a peril not insured or a peril specifically excluded.

In Tomazina Johnson, d/b/a Zing Zing’s Wings & More, LLC v. State Farm Fire & Casualty Company, No. 2:20-cv-02912-cgc, United States District Court, W.D. Tennessee, Western Division (November 23, 2022) the USDC resolved the dispute by reading the full policy and applying its language to the facts established by State Farm’s motion.

INTRODUCTION

Plaintiff’s Circuit Court Complaint alleged two claims: breach of contract and bad-faith refusal to pay an insurance claim pursuant to Tennessee Code Section 56-7-105.

State Farm moved for Summary Judgment arguing that Plaintiff’s claim for breach of contract failed as a matter of law because the Policy does not provide coverage regardless of which version of the evidence a trier of fact would choose to accredit. Specifically, the Policy does not provide coverage either if the property was sold to third parties or if the property was entrusted to third parties and removed or stolen by them.

Plaintiff argued that the Policy provides coverage for accidental physical loss of business personal property and that she has met her initial burden of establishing that an accidental, direct loss during the Policy period.

THE INSURANCE POLICY

State Farm issued a businessowner’s insurance policy that was in full force and effect insuring Plaintiff’s restaurant business, Zing Zing’s Wings & More, LLC (“Zing Zing’s”). The Policy provides that State Farm insures for the “accidental direct physical loss to Covered Property.” However, “Section I – EXCLUSIONS” and the “Property Subject to Limitations” provisions limited the coverages available to the Plaintiff. The policy contained the following exclusion:

Dishonesty

(1) Dishonest or criminal acts by you, anyone else with an interest in the property, or any of your or their partners, “members,” officers, “managers,” employees, directors, trustees, or authorized representatives, whether acting alone or in collusion with each other or with any other party; or

(2) Theft by any person to whom you entrust the property for any purpose, whether acting alone or in collusion with any other party.

This exclusion applies whether or not an act occurs during your normal hours of operation.

This exclusion does not apply to acts of destruction by your employees; but theft by your employees is not covered.

With respect to accounts receivable and “valuable papers and records,” this exclusion does not apply to carriers for hire.

The exclusion set forth in subsection 2(g) of the Policy (“False Pretenses Exclusion”) states as follows:

False Pretense

“Voluntary parting with any property by you or anyone else to whom you have entrusted the property if induced to do so by any fraudulent scheme, trick, device or false pretense.”

Evidence of Events Relevant to Plaintiff’s Claims

Plaintiff opened her restaurant Zing Zing’s. Its grand opening took place in February of 2019. However, while Plaintiff was operating the restaurant, it was operating at a loss.

On the advice of counsel Plaintiff dealt with two individuals-Curtis Braden (“Braden”) and Rayford Burns (“Burns”)- who were to take over Zing Zing’s while she was ill.

While the Policy remained in effect, Plaintiff testified that she “entrusted” her “business property and business” to Braden and Burns, provided them keys to the business, allowed them to temporarily operate her restaurant, allowed them to use her property and equipment, allowed them to sell food that she had already purchased, and allowed them to use the services of her employees for at least some period of time. Plaintiff testified that, while Braden and Burns were doing so, she would continue to pay her employees’ wages, the utilities, and all other bills related to the business, but Braden and Burns would pay the rent and keep the profits. During this arrangement, Plaintiff did not characterize Braden and Burns as her employees.

Plaintiff testified that, after entrusting Zing Zing’s to Braden and Burns, she was contacted by the landlord of Zing Zing’s who told her that the business was shut down. After receiving this phone call, Plaintiff went to Zing Zing’s and encountered two neighbors of the business who told her that the individuals she had allowed to operate the restaurant had removed everything out of the restaurant through the back door. Plaintiff reported to State Farm that Braden and Burns stole all of her property from Zing Zing’s.

Braden’s version of events is substantially different. He testified that Plaintiff transferred Zing Zing’s and its equipment and property to Burns by way of Bill of Sale. Braden testified that he observed Plaintiff initial and sign the Bill of Sale and that he notarized it.  Plaintiff continued to testify that she has “no idea” why her initials and signature were on the Bill of Sale and contends that it is a fraudulent document.

Ultimately, State Farm denied Plaintiff’s claim under the Policy.

Plaintiff provided an itemized list of property related to her claim that totals $20,052.48.

ANALYSIS & CONCLUSIONS OF LAW

Breach of Contract Claim

Plaintiff’s first claim alleges breach of contract by State Farm. There is no dispute that State Farm issued the Policy and that it was in effect at all times relevant to Plaintiff’s claim. Thus, the legal question at issue here is whether State Farm failed to perform its obligations under the Policy by denying Plaintiff’s claim for coverage.

The evidence before the Court failed to show that any dispute exists as to who removed the property. Plaintiff informed State Farm that Braden and Burns stole the property, and she personally continues to believe that Braden and Burns are responsible. She entrusted the property to Braden and Burns if they stole the property as alleged the theft was excluded.

Statutory Bad Faith Claim

Plaintiff’s second claim alleges a statutory claim for bad faith refusal to pay pursuant to Tennessee Code Annotated Section 56-7-105. To prevail on such a claim, the following elements must be met:

  1. the policy of insurance must, by its terms, have become due and payable;
  2. a formal demand for payment must have been made;
  3. the insured must have waited sixty days after making his demand before filing suit (unless there was a refusal to pay prior to the expiration of the 60 days); and,
  4. the refusal to pay must not have been in good faith.

The Court determined that the Policy did not provide coverage for Plaintiff’s claim as a matter of law since both possible causes of loss were excluded. Since Plaintiff’s claim has never been “due and payable” Plaintiff’s statutory claim for bad faith refusal to pay fails as a matter of law.

ZALMA OPINION

A sad tale of a person who – because she was ill – entrusted her property to two individuals who claimed they purchased the property and who she claimed stole the property. Unfortunately for the plaintiff either occurrence was specifically, clearly and unambiguously excluded.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications at substack at substack.com/refer/barryzalma

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

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

 

Posted in Zalma on Insurance | Leave a comment

It’s Time to Subscribe to Locals or Substack

For Subscribers Only I Have Published Special Insurance Videos

I published today on Locals.com Video Number 23 of the Excellence in Claims Handling program on Specific, Blanket and reporting coverages. I also published on Substack.com Video Number 9 of the Excellence in Claims Handling Program available only to  Subscribers. The subscribes have access to all the videos and a webinar on “The Examination Under Oath A Tool Available to Insurers to Thoroughly Investigate Claims and Work to Defeat Fraud.”

The videos start with the history of insurance and work their way through various types of insurance and how to obtain and deal with insurance claims.

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

Subscribe to my publications at substack at substack.com/refer/barryzalma

Go to substack at substack.com/refer/barryzalma

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

Posted in Zalma on Insurance | Leave a comment

Only Sue the Insurer

No Right to Sue Insurer for Fraud in Claims Handling

See the full video at https://rumble.com/v1x35s2-only-sue-the-insurer.html and at https://youtu.be/vvc5g_bYFdg

Impossible to Sue Insurers who are Part of the Same Group of Insurers

John R. Parrish sued alleging claims for breach of contract, breach of the duty of good faith and fair dealing, and fraud against the three defendant insurance companies. The claims arose out of defendants’ handling of an insurance claim submitted by plaintiff for storm damage to his home.

In John R. Parrish v.  Liberty Mutual Insurance Company, et al., No. CIV-22-0802-HE, United States District Court, W.D. Oklahoma (November 18, 2022) the homeowner’s policy that plaintiff relies on was issued by defendant American Economy Insurance Company. The other two defendants, Liberty Mutual Insurance Company and Safeco Insurance Company of America, are alleged to have handled various dealings with plaintiff and to have participated in the claims handling process.

All three defendants moved to dismiss the purported fraud claim arguing that Oklahoma law does not recognize a fraud claim in the alleged circumstances. Defendants Liberty Mutual and Safeco also moved to dismiss the contract and bad faith claims as to them since they did not insure Parrish.

A court will grant a motion to dismiss if the complaint fails to allege enough facts to state a claim to relief that is plausible on its face. The court accepts all well-pleaded factual allegations of the complaint as true and views them in the light most favorable to the nonmoving party. A claim is facially plausible when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.

THE FRAUD CLAIM

Claims for fraud in the inducement of the contract or as to the types and amount of coverage are examples of fraud allegations allowed with regard to insurance matters in Oklahoma. But that is not the circumstance alleged by Parrish. The petition raised no issue as to the formation of the insurance contract involved. Instead, Parrish, focused entirely on how plaintiff’s claim was handled once a claim was made under the policy. In that context, where claims handling practices under an insurance contract are at issue, Oklahoma does not recognize a fraud claim.

In Lewis v. Farmers Ins. Co., Inc., 681 P.2d 67 (Okla. 1983), the Oklahoma Supreme Court, stated that Oklahoma law recognized the two causes of action which may be asserted premised on the existence of an insurance contract:

  1. an action based on the contract; and
  2. an action for breach of the implied duty to deal fairly and in good faith.

The result is that here, where all the claims are premised on the existence of the contract, no fraud claim is available to the plaintiff.

The court concluded that Oklahoma law does not recognize a claim for fraud where the challenged conduct is the handling of a claim under an otherwise valid policy. Defendants’ motions were, therefore, granted.

LIABILITY OF LIBERTY MUTUAL AND SAFECO

Defendants Liberty Mutual and Safeco contend no claim is stated against them at all, as they did not issue the homeowner’s policy involved here and therefore cannot be liable on it or as to the duties arising out of it. Plaintiffs argued the extensive actions of Liberty Mutual and Safeco, and their employees, in handling the claims are sufficient to make them liable on the contract and bad faith claims, even though they were not a party to the contract.

The petition alleges that all three defendants are part of the same insurance group, that they advertise together in various ways, and that employees of Liberty Mutual and Safeco dealt directly with plaintiff and handled most or all aspects of the claims adjustment process. Plaintiff contends that is enough to make them potentially liable.

The petition does not explicitly allege that Liberty and/or Safeco are instrumentalities of American Economy nor, more importantly, does it allege facts that would support such a conclusion. The petition does, to be sure, allege substantial involvement by employees of Liberty Mutual and Safeco in handling plaintiff’s claim.

Without more, the suit only suggests a basis for concluding that Liberty Mutual and Safeco were agents of American Economy, not instrumentalities of it or of each other. Since neither Liberty Mutual nor Safeco are alleged to be parties to the insurance contract and since no plausible basis has been alleged here for concluding they were instrumentalities of the contracting party, the petition does not state a claim against either of them.

For the foregoing reasons, American Economy’s Partial Motion to Dismiss and Liberty Mutual and Safeco’s Motion to Dismiss were granted. The fraud claims were dismissed as to all defendants.

The contract and bad faith claims were dismissed as to Liberty Mutual and Safeco.

ZALMA OPINION

Because of mergers, consolidation, and specialization insurance holding companies operate multiple different insurance companies, with different names, different specialties, and management. To save expenses the holding company will employ the same staff of underwriters and claims personnel to handle claims for all of the many insurers under the control of the holding company. Each insurer is an individual entity that shares personnel with its sister insurers. In this case only American Economy insured Parrish and only American Economy could be sued for failure to fulfill the terms of the contract or for the tort of bad faith. The suit against the other insurers was simply an attempt to annoy and vex the holding company. It didn’t work. The claim for fraud couldn’t be proved in Oklahoma since anything done in the adjustment of a claim could fulfill the need to prove all of the elements of fraud.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications at substack at substack.com/refer/barryzalma

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

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

Posted in Zalma on Insurance | Leave a comment

No Insurance Policy Covers Every Risk of Loss

Court Refuses to Strain to Find Ambiguity That Did Not Exist

Go to substack at substack.com/refer/barryzalma

See the full video at https://rumble.com/v1wh110-no-insurance-policy-covers-every-risk-of-loss.html  and at https://youtu.be/X8ZbOzqtAPg

In ERIE INSURANCE EXCHANGE v. DRAGANA PETROVIC, No. 1-21-0628, 2022 IL App (1st) 210628-U, Court of Appeals of Illinois, First District, Second Division (November 15, 2022) the circuit court properly granted summary judgment in favor of the insurer declaring that it had no duty to indemnify or defend the insureds because the underlying accident occurred while the insured was operating his personal vehicle during the scope of employment, triggering the “auto exclusion” provision of the policy.

Erie Insurance Exchange (Erie) sued the defendants, Aral Construction Company (Aral) and Arunas Alasevicius (Alasevicius) and  Dragana Petrovic (Petrovic), seeking a declaration that Erie was not obligated to defend or indemnify Aral or Alasevicius in the underlying negligence claim brought by Petrovic.

In that underlying negligence claim, Petrovic alleged a truck driven by Alasevicius struck her open car door as she was exiting her parked car and knocked her unconscious. Petrovic further alleged that Aral owned or operated the truck that struck her and that Alasevicius was acting in the scope of his employment with Aral at the time of the accident. Both Aral and Alasevicius were insured under a commercial general liability policy with Erie (the insurance policy) at that time.

Erie claimed that: (1) Alasevicius failed to provide it with proper notice of the accident; and (2) that coverage was barred under the “auto exclusion” provision of the insurance policy. After discovery, Petrovic and Erie filed cross-motions for summary judgment seeking a declaration regarding Erie’s duty to defend Aral and Alasevicius. The circuit court entered judgment in favor of Erie and against Petrovic.

BACKGROUND

The motor vehicle accident at the heart of the underlying negligence claim occurred on October 25, 2017 in Chicago. Alasevicius was driving a truck when he struck the open car door of Petrovic’s parked car, as she was attempting to exit it, rendering Petrovic unconscious. Alasevicius stopped the truck and exited, but when Petrovic regained consciousness, he left.

Petrovic sued Alasevicius for negligence. Specifically, the amended complaint alleged that Petrovic suffered a closed head injury with brain damage including numerous side effects, such as vision impairment and headaches. Petrovic incurred $300,000 in medical bills, $75,000 in lost income, and $2085.80 in damage to her car.

At the time of the accident, while Aral was insured under the insurance policy with Erie,  the Erie policy titled “Fivestar Contractors Policy” is a commercial general liability policy and was issued to Aral with a limit of $1 million. The policy provides liability coverage for bodily injury and property damage arising from Aral’s business

With respect to the scope of coverage the policy contains numerous exemptions including, relevant to this appeal, the “auto exclusion” provision, which states that the insurance does not apply to:

‘Bodily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any *** ‘auto’ *** owned or operated by or rented or loaned to any insured. Use includes operation and ‘loading and unloading.’

This provision further provides:

This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the ‘occurrence’ which caused the ‘bodily injury’ or ‘property damage’ involved the ownership, maintenance, use or entrustment to others of any *** ‘auto’ *** that is owned or operated by or rented or loaned to any insured.

The insurance policy further contains numerous conditions. Relevant to this appeal, the condition titled “Duties in the Event of Occurrence, Offense, Claim or Suit” requires the insured to notify Erie “as soon as practicable of any ‘occurrence’ or an offense which may result in a claim.” Nearly two years after the accident, on September 10, 2019, Alasevicius notified Erie of the accident and the underlying lawsuit. A month later, on October 21, 2019, Erie sued for declaratory judgement seeking a declaration that it was not required to defend or indemnify Alasevicius or Aral under the insurance policy. Only Petrovic participated in the declaratory judgment action.

ANALYSIS

To ascertain the meaning of the policy, the court must construe the policy as a whole, as well as consider the risks undertaken, the subject matter that is insured, and the purpose of the entire contract. Where the words used in the policy, given their plain and ordinary meaning, are unambiguous, they must be applied as written. However, if the words in the policy are susceptible to more than one reasonable interpretation, they will be considered ambiguous and will be strictly construed in favor of the insured and against the insurer who drafted the policy.

To determine whether an insurer has a duty to defend an action against the insured, a reviewing court must compare the allegations of the underlying complaint to the relevant portions of the insurance policy.

An insurer may refuse to defend when the underlying complaint considered in light of the entire insurance policy, precludes the possibility of coverage.

In the present case, after reviewing the “auto exclusion” provision in the insurance policy and comparing it with the allegations in Petrovic’s amended complaint and the pleadings and exhibits offered by the parties the Court of Appeal found that Petrovic failed to state facts which either actually or potentially bring the case within the policy’s coverage.

The insurance policy to Aral is a commercial general liability policy, which contains an “auto exclusion” provision, explicitly precluding coverage for “bodily injury” or “property damage”” arising out of the ownership, maintenance, use or entrustment to others of any ***’ auto’ *** owned or operated by *** any insured.”

Petrovic’s amended complaint seeks recovery for bodily injury and property damage “arising out of” “ownership” and “use” of an “auto” “owned and operated” by an insured, namely Alasevicius. Accordingly, comparing the plain language of the “auto exclusion” provision to Petrovic’s amended complaint and the evidence offered by Alasevicius’ deposition, there can be no dispute that the accident alleged in the underlying complaint arose from the “use” or “operation” of an “auto” “owned and operated” by an insured, namely Alasevicius, so as to bar coverage and absolve Erie from defending Aral and Alasevicius in the underlying lawsuit.

Petrovic made numerous judicial admissions that under the insurance policy Alasevicius could be both an executive officer and an employee, and that at the time of the accident he was in fact performing work as an ordinary employee of Aral, so as to trigger the “auto exclusion” provision. A judicial admission is a deliberate, clear, unequivocal statement by a party concerning a concrete fact within that party’s knowledge.

Since by Petrovic’s own admissions Alasevicius was acting as Aral’s “employee” at the time of the accident, he was an “insured” under the policy and the “auto exclusion” provision applied to bar coverage of the accident.

By its plain and ordinary terms, the “auto exclusion” provision applies to “any insured,” and therefore to both Aral’s “executive officers” and “employees.”

Petrovic’s interpretation of the insurance policy. to the contrary, would lead to an absurd result.

In the present case, Petrovic’s interpretation of the policy language is neither reasonable, nor supported by legal authority. Under these circumstances, the court refused to strain to find an ambiguity where none exists.

ZALMA OPINION

The Illinois Court of Appeals acted as required and interpreted the CGL as written. Petrovic was seriously injured by Erie’s insured and if the coverage applied would have responded as, I can only assume, the auto insurer paid the limits of its policy. Erie was the target of Petrovic because she needed some way to gain damages for her serious injury. Not everyone is insured for all risks faced by the person insured. No matter how deserving Ms. Petrovic was; no matter how serious her injury; the court could not create insurance coverage that did not exist. No insurance policy covers every risk of loss.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

Consider subscribing to my publications at substack at substack.com/refer/barryzalma

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

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

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

 

Posted in Zalma on Insurance | Leave a comment

Why I am Thankful

My Thanksgiving Wishes from My Family and I to You and Yours

See the full video at https://rumble.com/v1woj74-why-i-am-thankful.html and at https://youtu.be/IqeG-Nd-1Hs

A Blog and Video Blog Explaining Why I am Thankful

My family and I have much to be thankful for this year, not the least of which are the care provided by Dr. Wright, the cardiologist who cares for me and my wife, Thea.

I am personally in good health, walking four to five miles a day, and in retirement from the practice of law, working only six to eight hours a day doing what I love the most, writing about insurance, insurance claims, insurance law and acting as an insurance claims consultant and expert witness.

To me, I am thankful for you, my friends, clients and readers of “Zalma’s Insurance Fraud Letter,” my blog “Zalma on Insurance,” and my books and other writing including the new books: The Compact Book on Ethics for the Insurance Professional, The Tort of Bad Faith, The Equitable Remedy of Rescission of Insurance, and Insurance Fraudsters Deserve no Quarter, the newest among many other books I wrote on insurance, insurance law and insurance claims available.

As a first generation American, whose parents were proud naturalized citizens, I am honored to join with all Americans the ability to celebrate Thanksgiving. The holiday started when the United States was a dream and just a colony of Great Britain to give thanks for the good things in life at least once a year. It took Abraham Lincoln, our greatest President, to make it an official holiday. The Thanksgiving holiday gives me and my family the opportunity to consider the blessings we have received as an American family and to thank all who have made it possible.

When I enlisted in the U.S. Army in 1967 to avoid the draft I volunteered to serve anywhere in the world other than Viet Nam. Fortunately for me, it seemed the U.S. Army made assignments in alphabetical order, so I was sent, with the wisdom only the U.S. Army could understand, to Peoria, Illinois. I served my enlistment in Missouri and Illlinois where I became a Special Agent in Charge of an office of U.S. Army Intelligence investigating people who sought security clearances.

I was trained effectively to be an investigator and enjoyed every minute of the job. Until the Army I had never seen a river without a concrete bottom only to see the mighty Mississippi as my first real river. I had never seen snow other than in the distance on mountains only to find myself shoveling the snow off the driveway in the small half-of-a-house I rented from my Peoria landlords, an old couple who could not do it themselves.

My investigative assignments required me to travel throughout Central Illinois from the Iowa to the Indiana borders. I stopped at court houses along the way, all of which had signs that Abraham Lincoln had practiced law there and convinced me to return to California and study law. Those experiences with the courts, law enforcement officers, and court personnel gave me the incentive to become a lawyer.

When I finished my three year enlistment I returned home, proposed marriage to the love of my life. I began the study of law at night and found my first real job where I could use the skills I learned in the Army. I was hired as a claims trainee at the Fireman’s Fund Insurance Company who spent the time to train me to be a claims adjuster.

The training I received was, unlike what is done at modern insurers, thorough. I was required to read a treatise on insurance and insurance claims handling. I was sent out with experienced adjusters in all types of insurance Fireman’s Fund wrote, and eventually allowed to deal with the public under close supervision.

Contrary to what was done in the insurance industry at the time, Fireman’s Fund allowed me to study law at night while I worked as a full-time insurance adjuster with the Fireman’s Fund. I was fortunate enough to work for a claims manager – Coleman T. Mobley – who did not require me to go out of state to adjust major storm claims if it interfered with my law school studies. Since I was in law school 50 weeks a year the only storm duty I was required to work was a fire storm that burned from the San Fernando Valley to the ocean at Malibu. Because of Mr. Mobley and the Fireman’s Fund I was able to complete my studies and pass the California Bar late in 1971 that allowed me to be admitted to the California Bar on January 2, 1972.

I took a cut in pay to get my first job as an Associate Attorney with a law firm that was willing to teach me to be a lawyer handling every kind of problem a new lawyer could face from wills, tort claims, divorce, drunk driving, trials, depositions, and dozens of orders to show cause in multiple courts around the Inland Empire of California. By doing so, the first two years after I started practicing law in 1972 I was able to become a lawyer who could deal with any issue brought to me.

I was fortunate enough to move to an insurance law firm in Century City where I was assigned to a coverage lawyer who was trying to deal with over 500 active matters who, when I arrived, assigned me 250 of the matters and pointed me to the firm’s library to learn what to do. At the time new technology was an IBM Selectric typewriter that could erase errors from the keyboard without the need to use white-out paint. I did legal research in the firm’s large library which, when it was inadequate for the task, I had to drive to the County Law Library in downtown Los Angeles. Research in a large library took days to find support for an issue.

In 1979 I decided it was time to be my own boss. I started a law firm called Barry Zalma, Inc. with a secretary who came from my last firm and brought an IBM Selectric typewriter with her into a small windowless office. I had obtained a line of credit from a bank that I hoped would carry us until the practice started since the only case I had was my sister’s rear-ender from which I could not take a fee. The office was furnished with a file cabinet from my father-in-law’s dental practice and a dining room table from my wife’s grandmother who had passed away.

I received my first call at 8:10 a.m. on the first day, October 1, 1979, from Alan Worboys then a claims person at Lloyd’s, assigning my fist case, and my practice began. I had nothing to do on October 3, 1979 so I wrote an article for publication. After that I had no peace and the firm quickly grew to 9 lawyers and a large staff to serve me and the eight other lawyers. The firm defended people who were insured and soon morphed into specialists acting as coverage counsel for insurers who needed advice and defense of bad faith suits. We did no plaintiffs’ tort cases.

Some of the things I, and my family, can give thanks for include:

  • I have loved my wife for 68 years since we first met when she was nine and I was twelve.
  • I am thankful that she still loves me and lets me make clear every day that I love her more now than I did when she ignored me when I was 12 and made me wait to marry her until 1967.
  • My three adult children who are successes in their own right.
  • That my three children, my almost six-year-old granddaughter live nearby, put up with my wife and I, and are healthy, successful,and mostly happy in what they do.
  • That my grandson is about to graduate from Puget Sound University in Washington state.
  • My clients who, for the more than 50 years have allowed me to earn a living doing what I love: practicing law until I let my license go inactive, acting as a consultant, testifying as an expert witness and writing materials to help others provide excellence in claims services as members of the insurance profession.
  • My publishers the American Bar Association, Full Court Press, Fastcase.com, Thomson Reuters, and Amazon.com.
  • My dearly departed parents and grandparents for having the good sense to leave the Ottoman Empire at the beginning of the 20th Century so our extended family could avoid the Holocaust and I could be born American.
  • My country for giving me a place to live and work in peace and complain about it without fear.
  • The state of California, where I was born, and have lived for 80 years, for allowing me to have my home and grow my family, and the ability to pay the high taxes for the privilege.
  • Those of you who read what I write and gain something from it.
  • Eighty years of mostly good health, but for a small heart attack and clogged arteries, that were all redone by a great surgeon, Dr. Robertson, who gave me the ability to continue to work as an octogenarian.
  • Allowing me the health and ambition to avoid my cardiologist by walking every day and working on my garden and training my bonsai.
  • The hundreds of friends I have never met but with whom the Internet has allowed me to communicate in parts of the world I have never visited.
  • The wonder of the Internet that allows me to publish Kindle E-books, ZIFL, insurance related videos and my blog instantly on line.
  • That my family can get together to express our thanks for each other and our happiness this year again without a need for anything but enjoying each other’s company.
  • That most of you, who I know only by my publications, have the right and opportunity to gather with your families to express your thanks for all of the good things that you have experienced.

I was more successful than I ever expected. I, whose life experience was limited to Los Angeles County and Central Illinois, found a need to travel to Taipei, Taiwan and London, England on behalf of my clients. I worked, as I had learned from my father who survived the Depression, 16 hours a day six or seven days a week. When I became 75 years old my firm had been reduced to a sole practice and I decided it was time to stop practicing law and become a consultant and fulfill my childhood dream to be an author.

I am a very lucky and happy man. I do work that I love. I fulfilled my childhood dreams. I Live in a home I have owned for more than 46 years that my wife and I adapted and increased as children were born to meet our needs, have the love of my life with me and look forward to celebrating our 55th wedding anniversary next month.

I am honored that my eldest daughter has come back to live with us and care for my wife and I who are not able to do everything we used to do.  My son shares my office building and has time to visit with me as allowed by his busy schedule. My youngest daughter is a successful public relations executive and makes the time to visit us regularly to allow us to play with her soon to be six year old daughter as often as possible.

I hope, on this Thanksgiving weekend, that you can join my family and me remembering that it is more important to think about our blessings and those things that we have to be thankful for than to get in line for “Black Friday” to buy an inexpensive flat screen t.v. or tablet.

Enjoy the holiday and your family as I will enjoy the holiday and my family as I have for every day of my life.

Posted in Zalma on Insurance | Leave a comment

False Invoices Defeat Claim

IT DOESN’T PAY TO TRY TO CHEAT YOUR INSURANCE COMPANY

See the full video at https://rumble.com/v1w8f2o-false-invoices-defeat-claim.html and at https://youtu.be/hzt8zH-qPvg

Legitimate Claim Destroyed by Creating Fake Invoices

Sigismondi Foreign Car Specialists, Inc. appealed the U. S. District Court’s summary judgment in favor of State Auto Property and Casualty Insurance Company on State Auto’s declaratory judgment action and statutory insurance fraud claim.

In State Auto Property And Casualty Insurance Company v. Sigismondi Foreign Car Specialists, Inc., No. 21-2435, United States Court of Appeals, Third Circuit (November 18, 2022) the Third Circuit Court of Appeal dealt with the allegations of the insurer that Sigismondi attempted insurance fraud.

FACTS

State Auto issued a commercial insurance policy that provided coverage for Sigismondi’s car repair shop. Sigismondi requested an insurance payment for water damage, but State Auto denied the claim, citing fraud.

The misrepresentations asserted as a defense by State Auto occurred during the claims-adjustment process. Sigismondi and State Auto retained adjusters to value the damaged inventory. The adjusters first created a joint inventory-a list of all the damaged items for which Sigismondi sought insurance proceeds. State Auto’s adjuster, Chad Foster, then researched prices of the same or similar products to determine either a “replacement value” (if Sigismondi replaced the item) or an “actual cash value” (if not). Sigismondi’s adjusters, or Sigismondi itself, likewise valued the items.

Sigismondi valued certain items higher than Foster estimated or could verify. Sigismondi presented what appeared to be original invoices from various vendors trying to convince State Auto to pay more than its adjuster calculated.

In truth, a Sigismondi employee had scanned at least some of the invoices into the computer and then used editing software to change the items and prices listed by the vendors. After Foster alerted State Auto to this issue, State Auto sent Sigismondi a reservation of rights letter, requesting further documentation and highlighting a policy provision stating the policy would be void if any insureds “intentionally conceal or misrepresent a material fact concerning . . . [a] claim under this policy.”

State Auto subsequently sued after further investigation confirmed the alterations. It sought a declaratory judgment that the policy was void. It also requested damages for statutory insurance fraud. Sigismondi counterclaimed for statutory bad faith. At the summary judgment stage, Sigismondi initially claimed its misrepresentations were not material. The District Court determined the misrepresentations were material and granted summary judgment to State Auto on its declaratory judgment action and statutory insurance fraud claim.

ARGUMENTS ON APPEAL

Sigismondi contended that it did not knowingly or in bad faith provide false or misleading information by submitting the altered invoices, and that the invoices themselves were not in fact misleading. The company argued it submitted the invoices only to allow the adjusters to identify items and vendors-not prices. Sigismondi insists this should have been clear because the invoices were dated after the water-damage incident.

It was hard to imagine how the invoices-which were doctored to include prices that did not come from the vendor-were anything but knowingly made to include false or misleading information. A fabricated receipt created by a consumer and presented as an official document from a retailer, without the retailer’s knowledge, constitutes false or misleading information.

Sigismondi also argued that any misrepresentations were not material because the invoices would not be the final word on value-Foster would conduct his own inquiry into prices based on the items and vendors. Sigismondi provided the altered invoices in response to a request for “invoice support” or other “documentation for the value claimed.” Its argument that the invoices, to which it added prices, were relevant only for information about items and vendors is contradicted by undisputed evidence. Because this exchange of information was part of an effort to determine the value of the insured items, the falsified invoices that indicated prices charged by vendors were undoubtedly material.

CONCLUSIONS

Reviewing the record in the light most favorable to Sigismondi the Third Circuit concluded that the altered invoices were material.

The affirmance of the declaratory relief in favor of State Auto doomed Sigismondi’s counterclaim for statutory bad faith. Because the policy was void, it did not cover Sigismondi’s damaged inventory. It followed, therefore, that State Auto cannot be liable for bad faith denial of the claim.

The Judgment was affirmed.

ZALMA OPINION

Insurance fraud like that attempted by Sigismondi is fairly easy to prove. Since the invoices and receipts presented were not originals the insurer merely had to have its adjuster or SIU investigator visit the various vendors to either affirm the authenticity of the invoices or establish that they were prepared in an effort to defraud. State Auto did just that and proved to the court and the Third Circuit that fraud was attempted. Although Sigismondi had incurred a proper loss it recovered nothing because it tried to cheat and when caught argued it really didn’t intend to defraud. The Third Circuit looked through the specious arguments and ruled against Sigismondi and in favor of the insurer.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

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

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

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

 

Posted in Zalma on Insurance | Leave a comment

RUST IS AN ACT OF NATURE

CAST IRON PIPES RUST & LEAK

Acts of Nature are Excluded

See the full video at https://rumble.com/v1vgvey-rust-is-an-act-of-nature.html  and at https://youtu.be/le_2YZLhx40

Marisol Rosa (“Rosa”) appealed a final summary judgment entered in favor of Safepoint Insurance Company (“Safepoint”). In Marisol Rosa v. Safepoint Insurance Company, No. 5D21-3005, Florida Court of Appeals, Fifth District (November 14, 2022) the Court of Appeals interpreted an exclusion for damages caused by an act of nature.

The Insurance Policy

Safepoint insured Rosa’s dwelling pursuant to a homeowners insurance policy. The dwelling was damaged by the overflow of water from the plumbing system. The parties agree that the loss resulted from the deterioration of cast iron pipes that was caused by “rust or other corrosion.” After investigating the damage, Safepoint determined the loss was excluded from coverage under the policy’s Water Damage Exclusion Endorsement. Rosa then sued seeking to recover the costs she incurred in repairing her dwelling due to the water damage.

The Issue

The issue in this appeal is whether the policy covers the subject loss, and the answer depends on the meaning of the term “act of nature” in the policy.

The introductory paragraph of the policy’s Exclusions section states that the policy does “not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. . . .” The definition of “Water Damage” following that introductory language was replaced by an endorsement to the policy, the Water Damage Exclusion Endorsement, which defines “Water Damage” as including: “d. Accidental or intentional discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance; . . . . Caused by or resulting from human or animal, forces or any act of nature.” (emphasis added)

Thus, if the rust or other corrosion that caused this loss was an act of nature, Safepoint correctly denied coverage. But, if the rust or other corrosion was not an act of nature, the Water Damage Exclusion Endorsement did not preclude coverage.

Policy Interpretation

The interpretation of an insurance policy is a question of law reviewed de novo. The guiding principle for insurance policy interpretation is that the policy must be read as a whole, affording words their plain meaning as bargained for by the parties. Florida law provides that insurance contracts are construed in accordance with the plain language of the policies as bargained for by the parties.

The insured argued that “act of nature” is synonymous with “act of God” and only occurs when a singular act or external force occurs. However, everyday interpretation of the phrase “act of nature” is not as narrow or technical as the insureds propose but rather is to be given its ordinary meaning as “something that naturally occurs.”

Read the Full Policy

The Court of Appeal found that in the context of this policy the phrase “act of nature” does not require an uncontrollable or unpreventable event. Here, the loss was caused by rust or corrosion. Corrosion, the chemical reaction between iron and moist air, is an act of nature or a naturally occurring force. Thus, the rust or corrosion occurred because of a natural act. As a result, the Water Damage Exclusion endorsement applied to this loss.

Such losses are excluded even if they were caused concurrently by a covered peril. In context, “any act of nature” is not limited to natural disasters, i.e., an act of God.

The policy at issue references “an Act of God” more than once in its Cancellation and Nonrenewal sections. Where the document has used one term in one place, and a materially different term in another, the presumption is that the different term denotes a different idea. As a general proposition, the use of different language in different contractual provisions strongly implies that a different meaning was intended. In light of the entire policy, the use of “an Act of God” and “any act of nature” separately indicates each phrase has a different meaning for the purpose of this homeowners insurance policy. Relatedly, the choice of the drafters to capitalize “an Act of God” stands in contradiction to the uncapitalized use of “any act of nature” in the exclusion.

The distinction further undermines Rosa’s argument that the terms “any act of nature” and “an Act of God” are interchangeable within the policy. Because the phrase “any act of nature” is made expressly applicable to the Water Damage Exclusion Endorsement the Court of Appeal concluded, as is required by basic insurance policy rules of interpretation, that the phrase is to be given its ordinary meaning.

In sum, the rust or other corrosion that occurred in the pipes in Rosa’s dwelling, regardless of whether it was perhaps preventable or controllable, was a naturally occurring force and thus an act of nature.

As an act of nature, the loss came within the policy exclusion for “any act of nature.” Consequently, the Court of Appeal concluded that Safepoint correctly denied coverage.

ZALMA OPINION

Insurance policies are always interpreted by reviewing the entire policy to make sense of the intent of the parties. Since the term “act of nature” only appeared with regard to the water damage exclusion and “Act of God” appeared elsewhere it was obvious to the court that the terms had different meanings. Rust is natural when moisture and air meets iron. It exists naturally in hillsides, abandoned autos and in iron pipes. The cause of the loss was the rust that caused the insured’s pipes to leak and damage her property. No insurance policy insures against every possible risk of loss and the cause of the loss was clearly and unambiguously excluded.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

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

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

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

Posted in Zalma on Insurance | Leave a comment

Arson is not Evidence of Love

Arson is not Evidence of Love

See the full video at https://rumble.com/v1v7p1c-arson-is-not-evidence-of-love.html and at https://youtu.be/C2HyIpWTxT0

Following a fifteen-day trial, a jury agreed with the State’s claims that defendant Terrence L. Strothers’ year-long dispute over a woman with another man, Shane Stevens, resulted in defendant assaulting Shane by firing a flare at Shane’s car; and later that same day recruiting some friends to aid in his retribution who fired two flares at Shane’s family’s home, causing its destruction.

In STATE OF NEW JERSEY v. TERRENCE L. STROTHERS, No. A-5157-18, Superior Court of New Jersey, Appellate Division (November 15, 2022) he attempted to avoid jail and the convictions that the jury found obvious.

JURY VERDICT

In reaching its verdict, the jury found defendant guilty of eleven of the State’s thirteen charges. Defendant was convicted of:

  1. third-degree conspiracy to commit arson as a lesser-included offense of second-degree conspiracy to commit aggravated arson;
  2. third-degree arson, as a lesser-included offense of second-degree aggravated arson; third-degree conspiracy to commit criminal mischief;
  3. third-degree criminal mischief; third-degree conspiracy to commit aggravated assault as a lesser-included offense of second-degree conspiracy to committed aggravated assault;
  4. third-degree aggravated assault as a lesser-included offense of second-degree aggravated assault;
  5. second-degree aggravated assault;
  6. two counts of third-degree possession of a weapon for unlawful purposes; and three counts of fourth-degree unlawful possession of a weapon.

Defendant received an aggregate eleven-year sentence for second-degree aggravated assault subject to the No Early Release Act (NERA), N.J.S.A. 2C:43-7.2, consecutive to a four-year sentence for third-degree arson, third-degree criminal mischief, and the third- and fourth-degree weapons offenses. Defendant was also ordered to pay $50,000 in restitution to the Stevens.

CHALLENGES TO CONVICTION

Defendant contested the trial judge’s:

  1. denial of defendant’s motion for judgment of acquittal;
  2. admission of the State’s fire expert testimony;
  3. decision not to substitute a deliberating juror; and
  4. jury instruction on the conspiracy to commit aggravated arson and aggravated arson charges.

Judgment of Acquittal

Defendant asserted the use of a flare gun was “a spur of the moment occurrence as no one expected Stevens and his friends to drive past . . . defendant’s house.” The only “weapons” brought were a bat and a two-by-four in case he and his friends were outnumbered in the fight. In denying defendant’s motion for acquittal, the judge reasoned that all the co-conspirators had met earlier at the defendant’s residence and at some point, proceeded over to the Stevens’ residence, to accompany defendant in his, I guess, vendetta for and retribution for damage to his car. That, in conjunction with the phone conversation where defendant threatened Shane that even though he may be going back to school to California, his house isn’t, at least creates the inference that he was going there to do something to the home. And as it turned out, he went there with others who had flare guns and it was obvious to defendant that others had flare guns. Codefendant Joshua Maldonado fired a flare gun. He recruited Barnes to accompany him. Barnes fired a flare gun.

To convict defendant of conspiracy to commit a crime, the State had to satisfy N.J.S.A. 2C:5-2(a), which provides in pertinent part:

A person is guilty of conspiracy with another person or persons to commit a crime if with the purpose of promoting or facilitating its commission he:

Agrees with such other person or persons that they or one or more of them will engage in conduct which constitutes such crime or an attempt or solicitation to commit such crime; or

Agrees to aid such other person or persons in the planning or commission of such crime or of an attempt or solicitation to commit such crime.

The Appellate Court concluded that the denial of defendant’s motion for judgment of acquittal of the arson, assault, and related weapon charges were appropriate.

Juror Substitution

The defendant invited the juror substitution and should not benefit from the substitution by claiming it was an error. He should not be able to argue that an adverse decision by the trial judge was the product of error, when he urged the judge to adopt the proposition now alleged to be error.

Even if the alleged error was not invited, the plain error rule applies because defendant neither objected to the removal of juror number nine nor argued it was too late to reconstitute the jury. Once a jury begins its deliberations, the trial judge may not substitute an alternate juror unless “a juror dies or is discharged by the court because of or other inability to continue.” The substitution of juror nine was consistent with Rule 1:8-2(d)(1) and did not violate defendant’s due process rights by denying him a fair trial.

Jury Instructions

Even though “and/or” is repeatedly used in the model jury instructions, and the jury is directed to consider alternative options, defendant fails to show how the phrase was improperly used in this instance. As to defendant’s guilt, the State argued he fired the flare gun at Shane’s car, and his conspiracy with others directly led to them firing the flare gun at Shane’s home. This did not present a reasonable possibility that a juror will find one theory proven and the other not proven but that all of the jurors will not agree on the same theory.

SENTENCING AND RESTITUTION

Lastly, defendant objected to the judge’s order to pay restitution towards the Stevens’ expenses of $138,065.27, which were uncompensated by insurance coverage. The judge assessed defendant’s ability to pay restitution, considering his wage earnings at the time of sentencing and his anticipated employment after serving his sentence.

ZALMA OPINION

In ordering restitution the judge ignored, and cut out, one of the victims of the crime: Shane’s insurer. It should have appeared at sentencing and demand restitution. Otherwise, this case proves that jealousy should be limited and by punishing the “other man” the lovelorn will now spend 11 years in prison and when he comes out he must pay his victim $138,065.27 or go back to jail.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

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

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

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

 

Posted in Zalma on Insurance | Leave a comment

For Subscribers Only

The Examination Under Oath

A Tool Available to Insurers to Thoroughly Investigate Claims and Work to Defeat Fraud

I have created an hour long presentation about the examination under oath which will be added to my locals community and my substack available only to subscribers who will pay $5 a month or $50 a year to see the special programs like the EUO Powerpoint and presentation with my detailed discussion of the subject.

You can become a subscriber at

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

“Excellence in Claims Handling” at https://barryzalma.substack.com/subscribe?

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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

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

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

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

Posted in Zalma on Insurance | Leave a comment

Claims Commandments

Claims Commandment XI

See the full video at https://rumble.com/v1uyjy4-claims-commandments.html and at https://youtu.be/B5SCwxgicU4

Thou Shall Empathize With the Claimant

Everyone in a claim situation is unhappy, disturbed, shocked, injured either in body or emotionally and needs help. The adjuster must recognize the difference between sympathy and empathy.

Empathy is identification with and understanding of another’s situation, feelings, and motives. It is the ability to understand another person’s circumstances, point of view, thoughts, and feelings.

Sympathy, on the other hand, is the sharing of another’s emotions, especially of sorrow or anguish and includes pity and compassion. It is the fact or power of sharing the feelings of another, especially in sorrow or trouble. Sympathy must be limited to the needs of relatives or clergy, not a professional relationship.

The adjuster should avoid sympathy and work to convince the insured or claimant that the adjuster empathizes with the claimant’s situation. Empathy can be shown if the adjuster can honestly express one or more of the following similarities between the adjuster and the claimant and simultaneously establish rapport:

  • They have similarities in their families;
  • They practice the same religious denomination;
  • They were also wounded in the war while serving in the US Military;
  • They have children of the same age;
  • They belong to the same club;
  • They engage in the same hobby;
  • They are fans of the same sports team, or
  • They have some interest in common.

When the claimant believes that the adjuster empathizes with the problems of the claimant or the insured the two will work together as a team to resolve the claim. With empathy, the adjuster can provide the service promised by the terms and conditions of the insurance policy.

The adjuster is the living embodiment of the insurance company. He or she is the person the insured meets when the insured faces a loss and needs help. It is the adjuster, and the help he or she gives the insured, which is the person who fulfills the promise made by the insurer when the policy was issued.

Without this service insurance becomes meaningless. The adjuster is the foundation upon which an insurer is built. If the adjuster is not professional and does not provide the service promised by the insurer, the promise made by the policy is broken and the insurer will first lose customers and ultimately fail. Claims that are owed must be paid promptly and with good grace. To do otherwise would be to ignore the purpose for which insurance exists: to provide service, protection, and security to the insureds.

The property adjuster has a duty to:

  • help the insured prove the loss to the insurer;
  • help the insured understand the terms and conditions of the policy;
  • investigate thoroughly to determine the cause and origin of the loss;
  • determine that the facts establishing the cause and origin of the loss is due to a peril insured against and not excluded; and
  • conduct a thorough investigation to determine if a third person is responsible for the loss so that subrogation can be instituted to recover, in addition to the money paid by the insurer, the deductible or other non-covered portions of the loss.

The liability adjuster represents the insurer and deals directly with the insured. When a claim is made, the insurer provides an adjuster to help the insured understand the policy and comply with its conditions.

The role of the liability adjuster is slightly different to that of the property adjuster. The liability insurance adjuster has the following duties:

  • to the insured, to protect him or her against exposure to liability to third parties as a result of an accidental tort that falls within the definition of “occurrence”;
  • to the claimant, to treat him or her fairly and, if liability exists, to resolve the claim promptly without ignoring the duty to the insured;
  • to the insurer, before agreeing to resolve a claim, to establish that coverage exists for the loss under the terms and conditions of the policy, that the insured is liable to the third party, and the most reasonable resolution of the claim has been achieved.
  • Investigate thoroughly the claim made against the insured.
  • Empathize with the insured’s situation as a person facing a claim or a lawsuit.
  • If the insured is liable to a third party evaluate the injuries and set the value of the claim.
  • Negotiate a settlement with the third party or his or her counsel.
  • Obtain counsel to defend the insured to the suit against him, her or it.
  • Help counsel with additional investigation required.
  • Set reserves and report in detail to claims management.

Insurance Claims Professionals must be people who:

  1. Can read and understand the insurance policies issued by the insurer.
  2. Understand the promises made by the policy and their obligation, as an insurer’s claims staff, to fulfill the promises made.
  3. Are all competent investigators.
  4. Have empathy and recognize the difference between empathy and sympathy.
  5. Understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
  6. Understand how to repair damage to real and personal property and the value of the repairs or the property.

An insurer whose claims staff is made up of people who are less than Insurance Claims Professionals will be destroyed by:

  • Paying claims that are not owed;
  • Paying claims that are false or fraudulent;
  • Refusing to pay claims that are covered;
  • Refusing to pay claims without a ground available in the policy; and
  • Participate in expensive and counter-productive litigation

The lesson for every claims person is to have empathy for the insured and the claimant.

Those in the claims profession must always recognize that as a result of establishing an empathetic rapport with the insured and the claimant, the claims investigation will be completed with ease, the insured or claimant will assist the adjuster, and the claim will eventually be resolved with both the insurer and the insured satisfied with the result.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

LIARS NEVER PROSPER

MATERIAL MISREPRESENTATION RESCINDS POLICY

Never Lie on an Application for Insurance

See the full video at https://rumble.com/v1uxyrm-liars-never-prosper.html  and at https://youtu.be/40aAMVO04TM

Plaintiff Security National Insurance Company’s moved for Summary Judgment on its suit for declaratory relief that the insured Salient Landscaping, Inc. misrepresented material facts sufficient to allow the insurer to rescind the policy.  In Security National Insurance Company v. Salient Landscaping, Inc., et al., No. 22-10555, United States District Court, E.D. Michigan, Southern Division (October 26, 2022) the USDC resolved the dispute.

BACKGROUND

On March 21,2018, Salient, by its owner Chris Fox, applied for general liability insurance coverage from AmTrust North America, an affiliate of Security. The “Underwriting Information” section of the insurance application (the “Application”) described Salient’s operations as “Basic landscape/lawn care service, maintenance and gardening – mowing, mulching, planting and/or installation” and identified its work as “Landscaping Gardening.” Salient responded “No” when asked whether it had performed, supervised, or subcontracted snow removal work in the past 10 years.

The Application included a letter entitled “Loss Warranty,” which provided that Fox, among others:

  1. warranted and represented that he inquired into Salient, and that, when the Application was executed, he did not know any undisclosed claim, fact, proceeding, circumstance, act, error or omission, which had been or might be expected to give rise to a claim; and
  2. understood and accepted that the Policy may be cancelled or rescinded should it be determined that Salient violated its representations and warranties.

The Application also contained a “WARNING” that “[a]ny person who, with the intent to defraud or knowing that he is facilitating a fraud against an insurer, submits an application or files a claim containing a false or deceptive statement is guilty of insurance fraud.” Fox signed the Application, acknowledging that he had read and understood all the questions asked in the Application and had provided all information required.

On March 22, 2018, Security issued the Commercial Lines Policy (the “Policy”) to Salient for the period from March 22, 2018 to March 22, 2019. The Policy required Security to cover and/or defend certain liabilities to bodily injuries or property damages arising out of the conduct of Salient’s business. The Policy also provided, under “Commercial General Liability Conditions” section:

6. Representations

By accepting this policy, you agree

1. The statement in the Declarations are accurate and complete;

2.Those statements are based upon representations you made to us; and

3. We have issued this policy in reliance upon your representations.

On or about February 7, 2022, Security was notified of Hutchinson’s lawsuit against Wellesley and Salient in Michigan state court arising out of a November 2018 slip-and-fall on ice incident. This was the first time Security learned of Salient’s involvement in snow removal work.

DISCUSSION

The court was asked only to address whether the Policy should be rescinded because of Salient’s misrepresentation in the Application, an issue independent of claims made in the Hutchinson’s lawsuit.

This federal declaratory action would settle only the legal relations between Security and Defendants, which will not impair or confuse the state court’s analysis because:

  • Security is not a party to these proceedings and
  • the state court has dismissed all claims against Salient (thereby halting any further involvement by Security in that case).

Additionally, there was no evidence that the declaratory remedy was being used merely for the purpose of “procedural fencing” or “to provide an arena for a race for res judicata,” and the court needs not assume otherwise.

The court found that the declaratory action would not increase the friction between federal and state courts and improperly encroach upon state jurisdiction, as there are different parties and there is no overlapping factual or legal issue. Finally, there has been no suggestion of a better or more effective alternative remedy.

Motion for Summary Judgment

Where the moving party has carried its burden of showing that the pleadings, depositions, answers to interrogatories, admissions and affidavits in the record construed favorably to the non-moving party, do not raise a genuine issue of material fact for trial, entry of summary judgment is appropriate.  A fact is “material” for purposes of summary judgment when proof of that fact would have the effect of establishing or refuting an essential element of the claim or a defense advanced by either party.

Under Michigan law, where an insured makes a material misrepresentation in the application for insurance the insurer is entitled to rescind the policy and declare it void ab initio. A false representation in an application for insurance which materially affects the acceptance of the risk entitles the insurer to cancellation as a matter of law.

Rescission is justified without regard to the intentional nature of the misrepresentation, as long as it is relied upon by the insurer. This proposition holds even in cases of “innocent misrepresentation,” so long as a party relies upon the misstatement.

There was no dispute that Salient made a misrepresentation in the March 21, 2018 Application when it denied having performed, supervised, or subcontracted snow removal work in the previous 10 years.

Five months earlier, Fox, the signatory in the Application, signed the “SNOW CONTRACT 2017-2022,” which allowed Salient to perform snow removal and de-icing services for Wellesley. Security has offered unrebutted evidence that the Policy as written would not have been issued but for the misrepresentation of no snow removal operation. Also unrefuted is the fact that Security “does not provide liability coverage to its insureds for snow removal operations and no premium was charged for this liability exposure.” This demonstrated the heightened risk that Security wants to avoid from its insureds’ snow removal operation. Accordingly, the USDC concluded that there was no genuine issue of material facts, and Security had the right to rescind the Policy based on the material misrepresentation made by Salient in the March 22, 2018 Application.

With the Policy rescinded, the parties must be returned to their respective pre-contract positions. Security must return all premiums paid by Salient to restore it to the pre-contract status quo. On the other hand, Security can recover the reasonable defense costs expended to defend Salient in the Hutchinson’s lawsuits before the court affirmed the rescission.

ZALMA OPINION

Since Salient had signed a contract to remove snow more than five months before signing the application for insurance it knew that the answer on the application was clearly and intentionally false. Even if the application’s signer had forgotten about the contract the innocent misrepresentation is still sufficient to support the rescission because the insurer was deceived and had it known the truth it would not have issued the policy. Therefore, the court returned the parties to the position they were in before the inception date of the policy.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

Posted in Zalma on Insurance | Leave a comment

Claims Commandments

Claims Commandment X

Thou Shall Not Pretend to be a Lawyer

See the full video at https://rumble.com/v1unu1m-claims-commandments.html and at https://youtu.be/dDARmaIdJ58

Some experienced and professional claims people know the law in their area of expertise better than most lawyers. Most claims people do not, nor are they capable of pretending, that they know the law.

Whether the claims person knows the law of insurance contracts or tort law well, he or she is not a lawyer and should not do anything that even hints that the adjuster is acting as a lawyer. Some insurers have hired people with law degrees as adjusters. Even with a law degree they are still just adjusters and are not hired to practice law. A law degree does not make a person a lawyer. If they are licensed to practice law in the state, if hired as an adjuster, they must still only act as an adjuster and not practice law.

Communications with an insured, dealing with coverage issues should be limited to the wording of the policy and the claim against the insured. If the case requires that legal authorities be cited to an insured or claimant to best communicate the position of the insurer the adjuster should retain the services of a competent coverage lawyer to write to the insured as the attorney for the insurer.

Many years ago, some disreputable insurance companies rescinded policies of insurance as a matter of policy to avoid legitimate claims. The claims staff was instructed to rescind every policy that generated a large claim. The insurer even provided a rubber stamp for the claim staff to use that said “RESCINDED”.

When a competent policyholder’s lawyer sued on behalf of those whose policies were rescinded and took the deposition of the adjuster, he destroyed the insurers’ position with a simple question: “Please spell ‘rescission.’” None of the adjusters he deposed could spell it correctly. Those few who could spell the word correctly were stumped by the second question: “What elements must be proved to establish a valid rescission.”

A coverage lawyer would have no trouble answering the two questions. An untrained and inexperienced adjuster would not. The insurers who rescinded willy nilly were assessed punitive damages in addition to requiring them to pay the claims. Most went out of business.

Adjusters should be adjusters and leave lawyering to lawyers. Similarly, lawyers should be lawyers and never attempt to be adjusters.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

Sleep With Dogs You’ll Wake With Fleas

No PIP Benefits for Staged Collision

See the full video at https://rumble.com/v1uq6gi-sleep-with-dogs-youll-wake-with-fleas.html  and at https://youtu.be/41qiTwhbKbQ

An insurer proved that it was faced with claims for injuries from staged accidents. The medical care providers of the fraud perpetrators who claimed to be injured in the staged accidents claimed a right to be paid for their services. The insurer disagreed.

In National General Insurance Online, Inc., et al. v. Franklin Blasco, et al., AB Medical Supply, Inc., et al., 2022 NY Slip Op 06252, No. 2019-13906, Index No. 605852/18, Supreme Court of New York, Second Department  (November 9, 2022) the New York appellate court dealt with an action for a judgment declaring that the plaintiffs are not obligated to pay certain no-fault claims, to the defendants AB Medical Supply, Inc., AB Quality Health Supply Corp., ACH Chiropractic, P.C., Energy Chiropractic, P.C., FJL Medical Services, P.C., JFL Medical Care, P.C., JPF Medical Services, P.C., Jules Francois Parisien, Kings Rehab Acupuncture, P.C., and Maria Shiela Masigla.

The judgment granting that branch of the plaintiffs’ motion which was for summary judgment on the complaint insofar as asserted against those defendants declared that the plaintiffs have no duty to provide coverage for the subject no-fault claims.

FACTS

In April 2017 and June 2017, within days of the defendants Jerry Noland and Franklin Blasco procuring automobile insurance policies, the vehicles for which the policies were issued were involved in two separate automobile collisions when they each came into contact with two separate taxicabs. The insurer was suspicious, investigated and established that the accidents were staged.

In or around April 2018, the plaintiffs, National General Insurance Online, Inc., and National General Insurance Company, sued Noland, Blasco and other individuals involved in the collisions, as well as, among others, the defendant medical providers alleging that the collisions were intentional and the insurers owed nothing.

After the Supreme Court (trial court) granted the plaintiffs’ motion for leave to enter a default judgment against the individuals involved in the two collisions, the plaintiffs moved for summary judgment on the complaint insofar as asserted against the medical provider defendants, arguing that they are not obligated to pay no-fault claims submitted to them by the medical provider defendants in connection with the collisions.

The Supreme Court granted that branch of the motion. A judgment was entered November 13, 2019. The medical provider defendants appealed.

ANALYSIS

The medical provider defendants failed to sustain their burden of demonstrating that the branch of the plaintiffs’ motion which was for summary judgment on the complaint insofar as asserted against them was premature.

Further, in what should be obvious, an intentional and staged collision caused in furtherance of an insurance fraud scheme is not a covered accident under a policy of insurance under New York law. Here, the plaintiffs established their prima facie entitlement to judgment as a matter of law by demonstrating, through admissible evidence, that the subject collisions were intentionally caused or staged.

The medical provider defendants failed to raise a triable issue of fact. Accordingly, the Supreme Court properly granted that branch of the plaintiffs’ motion which was for summary judgment on the complaint insofar as asserted against the medical provider defendants.

ZALMA OPINION

Take the Profit Out of the Crime of Insurance Fraud

National General has adopted a most effective method of deterring or defeating insurance fraud: they took the profit out of the crime. By suing both the fraud perpetrators and the so-called medical providers who allegedly provided medical services to the fraudsters, they avoided paying anyone who participated in the fraud and made it known to the community of fraudsters that National General is not an insurer worthy of the effort to defraud.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at http://www.zalma.com and zalma@zalma.com.

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

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

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

Posted in Zalma on Insurance | Leave a comment

Zalma’s Insurance Fraud Letter – November 15, 2022

ZIFL – Volume 26, Issue 22

See the full video at https://rumble.com/v1ugehy-zalmas-insurance-fraud-letter-november-15-2022.html   and at https://youtu.be/2LLr4abAY2g and the full pdf of the issue at http://zalma.com/blog/wp-content/uploads/2022/11/ZIFL-11-15-2022.pdf

In this the twenty sixth year of publication of Zalma’s Insurance Fraud Letter, Issue Number 22 will provide articles on the following subjects:

A Void Policy May not respond to a Claim

Douglas McKenzie and Jeffery Bigsby (collectively, “Plaintiffs”) filed this insurance dispute action against GEICO Marine Insurance Company (“GMIC”) in the Superior Court of Washington for Snohomish County on April 7, 2022. GMIC moved to dismiss the complaint. In Douglas McKenzie and Jeffery Bigsby v. GEICO Marine Insurance Company, Civil Action No. 2:22-cv-00647-BJR, United States District Court, W.D. Washington, Seattle (November 2, 2022) the USDC resolved the dispute.

A person who is convicted of insurance fraud in the presentation of a claim must result, a priori, in the voidance of a policy of insurance. Schladetzky’s fraud voided the policy. The Plaintiffs, who could not collect from the felon, tried to collect from the insurance policy issued to Schladetzky. Although the court gave consideration to the plaintiffs arguments it had no choice but to grant GMIC’s motion since there was no policy to respond to their claims. They have a judgment against the person responsible for their losses and they should spend their efforts to collect from him, not try to bludgeon an insurer who was the victim of a fraud to increase the cost of the fraud imposed on GMIC by the felon.

You may read this article in full at ZIFL-11-15-2022

The State Bar of California and Tom Girardi

On November 3, 2022 the State Bar of California published an open letter. For those of you who did not read earlier reports about attorney Girardi, he was found to be without funds and was accused of using money belonging to his clients held in trust accounts for his personal use. As a result of the State Bar investigation, he was eventually disbarred. The State Bar was embarrassed by its lack of action and has issued an open letter to explain its position. Everyone involved in the business of insurance should be aware of the contents of the announcement and the letter.

GIRARDI WAS DISBARRED AND THE STATE BAR ACCELERATED CLIENT SECURITY FUND PAYMENTS

The Chief Trial Counsel sought disbarment of Girardi in 2021; following a default, Girardi was disbarred by the Supreme Court in June 2022. Also in 2021, even before Girardi was disbarred, the State Bar’s Client Security Fund began making payments to his victims on an accelerated basis.

On behalf of the entire Board, I’d like to express our appreciation to all who have reached out with their thoughts, concerns, and complaints. We hear you, loud and clear. Your experiences serve as a sober reminder of the importance of our efforts to do better. We are committed to doing so, to fulfill our mission of protecting the public.

You may read this article in full at ZIFL-11-15-2022

Double Jeopardy Eliminates Three of Four Convictions

In The People of the State of Colorado v. Natasha Earnce Robinson, No. 19CA1768, 2022 COA 124, Court of Appeals of Colorado, Third Division (October 27, 2022) prosecutors found that they overcharged a defendant but her conviction for insurance fraud remained.

Natasha Earnce Robinson appealed the judgment of conviction entered on jury verdicts finding her guilty of four counts of insurance fraud and one count of false reporting to authorities. She contended, among other things, that because her four convictions for insurance fraud are based on a single insurance claim, those convictions are multiplicitous in violation of double jeopardy principles.

You may read this article in full at ZIFL-11-15-2022

Good News from the Coalition Against Insurance Fraud

Read about the following and 18 Convictions at ZIFL-11-15-2022

A pain doc made more than $400K in false claims for steroid injections to Medicare and Medicaid that were neither reasonable nor medically needed in the Pittsburgh area. Patients and employees said Dr. John Keun Sang Lee required patients to get steroid injections — even when patients said the jabs didn’t help but rather caused more pain and other injuries. Lee also told employees to withhold his patients’ meds if they objected to the injections. To justify billing insurers, Lee told staff to use templates lying his patients received 80% relief from prior pain injections. Lee pled federally guilty. Up to 10 years in prison await when Lee is sentenced March 7.

You may read this article in full at ZIFL-11-15-2022

How to Add to the Professionalism of Insurance Personnel

The insurance industry has been less than effective in training its personnel. Their employees, whether in claims, underwriting or sales, are hungry for education and training to improve their work in the industry.

You may read this article in full at ZIFL-11-15-2022

Florida’s Attempt to Deter Insurance Fraud

On October 19, 2022, Florida Chief Financial Officer (CFO) Jimmy Patronis held a press conference in Cape Coral to highlight fraud prevention efforts in the wake of Hurricane Ian. During the press conference, the CFO announced that he will propose legislation, including cracking down on bad Public Adjusters by curbing their ability to take advantage of Floridians under financial duress, combatting Assignment of Benefits (AOB) abuse by eliminating the use of AOBs altogether, creating a statewide prosecutor focused solely on property insurance fraud to hold fraudsters accountable to the full extent of the law, and lastly, requesting a $3 million anti-fraud public education campaign.

You may read this article in full at ZIFL-11-15-2022

Health Insurance Fraud Convictions

Home health manager sent to prison for $21M Medicare fraud scheme

Felix Amos, 72, Houston, pleaded guilty Dec. 18, 2018, to conspiracy to commit health care fraud. On October 31, 2022 U.S. District Judge Andrew S. Hanen ordered him to serve 30 months in federal prison and three years of supervised release. He was further ordered to pay $21,197,440 in restitution.

On March 22, a jury returned guilty verdicts against Fausat Adekunle, 39, Richmond, on 10 counts following a four-day jury trial. Judge Hanen later ordered her to serve 144 months in federal prison to be immediately followed by three years of supervised release. She must also pay restitution of $21,197,440.14.

You may read this article including 14 Convictions in full at ZIFL-11-15-2022

Other Insurance Fraud Convictions

Former Seal Beach Insurance Agent Sentenced For Theft From Elderly Consumer

Vincent Allen LaGrange, 66, of Seal Beach, a formerly licensed insurance agent was sentenced in San Bernardino County Superior Court on one misdemeanor count of grand theft from an elder after an investigation by the Department of Insurance found he was acting as a licensed insurance agent to collect insurance premium payments from consumers but pocketing the premium monies and leaving the consumers uninsured. LaGrange was sentenced to one year probation and has paid back full restitution to his victims.

The Department of Insurance revoked LaGrange’s license and his entity license, operating as LaGrange and Associates Inc, and Empire-Valley Insurance Services, in May 2016 after proving that he had overcharged an elderly consumer by collecting earthquake coverage twice and misleading her about the billing. LaGrange even financed her premium with a separate finance company without her knowledge and attempted to re-apply for a new license six months later but was denied.

You may read this article including 9 Convictions in full at ZIFL-11-15-2022

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

Claims Commandments

Claims Commandment IX

Thou Shall Document the Claim File

See the full video at https://rumble.com/v1twipc-claims-commandments.html and at https://youtu.be/wjXvbSYAwAY

Insurance claims handling is a person to person business where the claims handler, the insured and the claimant (if there is one) interact with each other. Because the interaction is not always perfect it is essential to document the interaction in the claims file whether hard paper or electronic and paperless. In addition to the fact that such documentation is good claims handling, it is required by most state insurance regulators and most Fair Claims Settlement Practices Regulations.

For example every professional claims handler must:

  1. Maintain all claim data that are accessible, legible and retrievable for examination so that an insurer shall be able to provide the claim number, line of coverage, date of loss date of payment of the claim, date of acceptance, denial or date closed without payment. This data must be available for all open and closed files for the current year and the four preceding years.
  2. Record in the file the date the licensee:
    1. received notice of the loss or claim,
    2. date(s) the licensee processed the claim and
    3. date the licensee transmitted or mailed every material and relevant document in the file; and
  3. Maintain hard copy files or maintain claim files that are accessible, legible and capable of duplication to hard copy. [California Fair Claims Settlement Practices Regulations, 10 CCR 2695.3 (a)]

Adjusters, claims handlers and any other claims personnel who maintain “working” or “field” files, should be aware that those additional files are part of the file and records required to be kept by the Fair Claims Settlement Practices Regulations and are subject to examination by the Insurance Department.

The practice of being less cautious in the maintenance of “working” or “field” files should be discontinued. Every comment and note made in a claims file should be written as if it were addressed to “Dear Commissioner” or Dear Ladies and Gentlemen of the Jury.” Although the claims file must be complete and informative for the Regulator it must also provide information sufficient for claims management to understand and authorize resolution of or denial of a claim.

All file destruction practices should be reviewed to ascertain that no file will be destroyed less than five years after it is opened nor less than four years after it is closed. Insurers should also maintain procedures to never destroy a file if litigation has started or is anticipated until after the litigation is resolved.

A diary system for the destruction of old files should be established by the insurer and its claims personnel with a requirement to keep the files at least two years longer than the required by the Department of Insurance or the local Fair Claims Settlement Practices Regulation. Litigation, of course, requires extra precaution to protect the files.

If the files are scanned into computer media, microfilmed, or recorded in a method other than paper backups off site backup of the files should also be maintained.

If date stamps are not in use the insurer should provide a date stamp to each claims person so that the date of each action will be recorded in the file. If the insurer is “paperless” all incoming mail and documents must have imbedded in the image a date showing the date and time when the document was received or issued.

A mail log should also be maintained to establish dates of mailing of each document. If the insurer uses computer generated e-mail and logging the computer should be programmed to record the date and time of each entry in such a manner that the employee cannot modify or change the dates of any entry. All e-mail communications must be saved for up to five years in a searchable database or in connection with the electronic claims file.

All electronic records must be kept in such a manner that would allow a complete copy of the electronically recorded materials to be printed out in full so that it is available to produce to the Regulator or in discovery if litigation occurs. Every computer record should be kept with on-site and off-site back-ups of the records.

Every insurance regulator will usually conduct audits of insurers doing business in their state. Failure to properly document files as required by good claims handling, statutes or regulations will find the insurer facing fines and bad reports on the ability of the insurer to properly complete the promises made by the insurance policy.

Unfortunately claims people must also spend a great deal of their time documenting the file because about three percent of all claims result in litigation against the insurer. It is essential to every litigation that the insurer has a record of all investigation, documentation, expert analysis, and evaluation so that the file will establish that the insurance claims personnel acted properly and in good faith to resolve the claim. If the claim is investigated with the utmost good faith and the decisions are made in compliance with the facts and policy wording it will be available to protect the insurer against false allegations of bad faith.

The professional claims person will log every telephone call, keep every e-mail and letter in the claims file, and document everything done to deal with the claim. The professional claims person will treat everyone with whom he or she comes in contact with the utmost good faith and fair dealing.

For detail about my book California Fair Claims Settlement Practices 2022 and many more by Barry Zalma go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ the book is Available as a Kindle Book  and Available as a Paper Back

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

Appraisers Can’t Determine Causation

Appraisal Limited to Quantum of Crop Loss

See the full video at https://rumble.com/v1tm7oo-appraisers-cant-determine-causation.html and at https://youtu.be/UQ1vL6b-jzs

In Agrisompo North America, Inc. v. Coldwater Planting Company, M&W Farms, LLC, Brazil Planting Company, Pushen & Pullen Farms, and Webb Farms, No. 3:22cv51-MPM-RP, United States District Court, N.D. Mississippi (November 4, 2022) Coldwater Planting Company, et al moved to dismiss this action.

ISSUES

Plaintiff Agrisompo asked the USDC to enter an order appointing an “umpire” to decide the underlying crop insurance dispute. The dispute was to determine whether the crop damage suffered by the insureds in June 2021 was caused by a covered wind damage event or a non-covered flood event.

The parties were unable to resolve their disagreements regarding this issue, and plaintiff responded to the impasse by suing to appoint an umpire. Plaintiff contended that the court has the authority to make such an appointment based on an appraisal policy provision which states that the appraisal procedure will be used “[i]f you and we fail to agree on the percentage of loss caused by one of the insured perils ….”

ANALYSIS

There is extensive Mississippi authority holding that, under the law of this state, an appraiser may not determine causation issues under an insurance contract. In Jefferson Davis Cnty. Sch. Dist. v. RSUI Indem. Co., 2009 WL 367688, at *2 (S.D.Miss. Feb. 11, 2009), Judge Parker wrote that: “Defendant argues that appraisal is inappropriate because this case involves ‘coverage and causation questions, not a dispute about the value of an admittedly covered loss.’”

Judge Parker also wrote that “it is clear that under Mississippi law the purpose of an appraisal is not to determine the cause of loss or coverage under an insurance policy; rather, it is ‘limited to the function of determining the money value of the property’ at issue.” (emphasis added)

This authority convinced the USDC as being directly on point, and, in response, plaintiff is only able to offer it precedent from other states, which follow a different interpretation of the law. While plaintiff is able to cite extensive authority from other jurisdictions in this regard, this merely serves to highlight the fact that it is defendants who are able to offer Mississippi precedent on point.

Plaintiff did not dispute that the diversity action is governed by Mississippi law, and it therefore seemed clear to the court that the relief which it sought from the court is unavailable to it. The court noted that a civil action is presently pending in the Greenville Division which seeks to litigate the insurance coverage issues. Therefore the court concluded that that case is the proper forum for the parties to resolve their disputes.

Defendants’ motion to dismiss this action was, therefore,  granted.

ZALMA OPINION

Standard “appraisal” language limits the ability of the appraisers to only determine the amount of loss. Determination of coverage disputes can only be resolved in appropriate breach of contract action. Some jurisdictions have tried to give appraisers more authority than that provided by the policy. The USDC kept to the authority in the policy and followed by the state of Mississippi.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

Failure to Timely Sue Defeats Claim

Private Limitation of Action Provision Enforceable

See the full video at https://rumble.com/v1tckaa-failure-to-timely-sue-defeats-claim.html and at https://youtu.be/gbA7CzgFXLc

The Hanover Insurance Company, Inc. (“Hanover”) and Sportsinsurance.com, Inc. (“Sportsinsurance”) each appealed from the District Court’s order granting in part and denying in part Hanover’s motion to dismiss Sportsinsurance’s complaint because it failed to sue within two years after learning of the fact that it was the victim of an embezzlement.

In Sportsinsurance.com, Inc. v. The Hanover Insurance Company, Inc., Nos. 21-1967-cv (L), 21-2063-cv (XAP), United States Court of Appeals, Second Circuit (November 4, 2022) Sportsinsurance discovered that Kenza El Baroudi (“Baroudi”), its Chief Financial Officer, was embezzling from the company. Sportsinsurance believed Baroudi’s embezzlement constituted a loss under an insurance policy (“Policy”) it held with Hanover, and it accordingly submitted a claim under the Policy.

Hanover denied the claim. Sportsinsurance did not immediately sue Hanover under the Policy. Instead, Sportsinsurance pursued a legal action against Baroudi in Quebec, Canada. In July 2019, the Canadian court found that Baroudi had “wrongfully misappropriated” money from Sportsinsurance. Armed with this judgment Sportsinsurance submitted a second claim to Hanover. Hanover once again denied it. At that point, in March 2020, Sportsinsurance sued Hanover. Sportsinsurance alleged that Hanover breached both the express terms of the Policy and the implied covenant of good faith and fair dealing.

The District Court dismissed Sportsinsurance’s breach of contract claim as time-barred by the Policy’s contractual limitations provision (“Limitations Provision”), which required Sportsinsurance to bring any action “involving loss” within two years “from the date . . . [it] ‘discovered’ the loss.” The District Court found that, among other things, the implied covenant claim was not subject to the Limitations Provision because it did not “involve loss.”

THE ISSUES

Concluding it has jurisdiction to review the breach of contract claim the Second Circuit found the question became whether it would exercise its discretion to do so and concluded that addressing Sportsinsurance’s cross-appeal will promote judicial and litigant efficiency without prejudicing either party.

Next issue, the question of whether the breach of contract claim is time-barred and thus subject to dismissal. Because an agreement which modifies the Statute of Limitations by specifying a shorter, but reasonable, period within which to commence an action is enforceable. Language in an insurance policy’s contractual limitations period is construed as starting the clock not at the time of the accident itself but only once ‘the right to bring an action exists. That default rule gives way if a policy contains “exceptionally clear language” that, for example, “fixes the limitations period to the date of the accident.”

Importantly, and in relevant part, the Policy defines “discovered” as “the time when [Sportsinsurance] first become[s] aware of facts which would cause a reasonable person to assume that a loss of a type covered by this policy has been or will be incurred.” That specific definition fixes the Limitations Provision’s commencement to when Sportsinsurance reasonably knew it had or would suffer a loss. This is the type of “especially clear language” which displaces the default rule. Therefore, the contractual limitations period commenced in January 2016 when Sportsinsurance “discovered” Baroudi’s “frauds and thefts.”

The Second Circuit concluded that this Limitations Provision is not unreasonable nor is there is nothing inherently unreasonable about a two-year period of limitation.

Sportsinsurance argued that the Limitations Provision here is unreasonable because it requires that Sportsinsurance (1) “compl[y] with the terms” of the Policy and (2) not bring suit until “90 days after it filed its proof of loss,” which it had to file within 120 days of discovering the loss. These requirements did not prevent Sportsinsurance from timely suing. Sportsinsurance “discovered” the loss in January 2016. By January 2017, Hanover had investigated and “denied” Sportsinsurance’s claim. Sportsinsurance had a full year to bring a legal action against Hanover. It did not.  Since the Limitations Provision is fair and reasonable it is enforceable.

In a final effort to evade the Limitations Provision, Sportsinsurance argued that Hanover is either estopped from enforcing or waived the Limitations Provision.  The bare allegation that Hanover stated it was open to additional information cannot carry Sportsinsurance’s estoppel or waiver arguments to forestall affirmance of the District Court’s order dismissing the breach of contract claim.

The first two breaches “involve” Baroudi’s embezzlement because the embezzlement is the basis for the claim under the Policy. The implied covenant claim is thus time-barred. The Second Circuit accordingly reversed and dismissed the claim that Hanover breached the implied covenant of good faith and fair dealing.

The declaratory judgment action was dismissed as time-barred because it involves “loss” as Sportsinsurance defined that term.

ZALMA OPINION

Almost ever policy of insurance contains a private limitation of action provision requiring suit to be filed against the insurer within one or two years of discovering the claim. Some states, like California, by court opinion and regulation require that the private limitation of suit provision start running when the claim is denied rather than when it is discovered. In this case, it didn’t matter which, since the plaintiff Sportsinsurance waited more than two years from the denial to file suit proving that he who sits on his rights will lose.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

Mandamus Required

Proof Required of Liability and Underinsured Nature of Defendant Before Suit Against Insurer

See the full video at https://rumble.com/v1rzphc-no-need-for-fiduciary-relationship-between-agent-and-insured.html and at https://youtu.be/upNV1bmfWcM

In the case In Re United Financial Casualty Company, Relator, No. 14-22-00502-CV the Court of Appeals of Texas, Fourteenth District (November 3, 2022) ordered the issuance of a writ of mandate if the trial court refuses to follow its instructions to abate a premature extra contractual claims against the insurer.

BACKGROUND

United Financial Casualty Company (“United Financial”) filed a petition for writ of mandamus asking the Court of Appeals to compel the Honorable Lauren Reeder, presiding judge of the 234th District Court of Harris County, to vacate the trial court’s June 6, 2022 order denying United Financial’s motion to abate the real party in interest Elizabeth Echeverria’s (“Echeverria”) extra-contractual claims in an uninsured/underinsured motorist coverage suit.

Echeverria was involved in a motor vehicle accident as a passenger in a vehicle operated by Uber driver Samir Tachbaroute (“Tachbaroute”). Carlos Lanausse-Ramos (“Lanausse-Ramos”) allegedly rear-ended Tachbaroute’s vehicle. Echeverria alleges that she sustained physical injuries as a result of this accident.

At the time of the accident, United Financial insured Tachbaroute under a commercial auto policy with uninsured/underinsured (“UM/UIM”) coverage. Echeverria made uninsured bodily injury claims under this policy. Before Echeverria and United Financial resolved the claim, Echeverria filed suit against United Financial.

In the lawsuit, Echeverria seeks declaratory relief to establish entitlement to UIM motorist benefits and for alleged violations of Insurance Code chapters 541 and 542; breach of the duty of good faith and fair dealing; violations of the Texas Deceptive Trade Practices-Consumer Protection Act (“DTPA”); and fraud.

Although Echeverria has not yet obtained a legal determination that Lanausse-Ramos is liable for the accident and is underinsured, Echeverria sued United Financial for the alleged violations.

The trial court denied the motion to abate Echeverria’s extra-contractual claims.

In this original proceeding, United Financial asserts that the trial court abused its discretion by denying United Financial’s motion to abate Echeverria’s extra-contractual claims. The Court of Appeal requested that Echeverria file a response to the petition for writ of mandamus; however, no response was filed.

MANDAMUS STANDARD OF REVIEW

Ordinarily, to be entitled to a writ of mandamus, the relator (the insurer) must show that the trial court clearly abused its discretion, and that the relator lacks an adequate remedy by appeal. Most such applications are refused because of the high requirement of proving abuse of discretion. However, if a trial court abuses its discretion if it acts arbitrarily, unreasonably, or without regard to guiding legal principles. The trial court’s failure to analyze or apply the law correctly constitutes an abuse of discretion.

Relator also must demonstrate that it does not have an adequate remedy at law, such as a remedy by an appeal. The Court of Appeal determines the adequacy of an appellate remedy by balancing the benefits of mandamus review against the detriments. Mandamus relief is appropriate when a trial court abuses its discretion in denying a motion to abate extra-contractual claims in an UIM case.

ABATEMENT OF EXTRA-CONTRACTUAL CLAIMS

Abatement of Echeverria’s extra-contractual claims is required until the declaratory judgment action and breach-of-contract claim have been decided. An insured’s claim for breach of an insurance contract is distinct and independent from claims that the insurer violated its extra-contractual common law and statutory duties.

UIM claims and bad-faith claims have been recognized as separate and distinct claims, which might each constitute a complete lawsuit within itself. A UIM insurer has no contractual duty to pay benefits until the liability of the other driver and the amount of damages sustained by the insured are determined. To recover benefits under a UIM policy, a policy beneficiary must show:

  1. the insured has UIM coverage;
  2. the other driver negligently caused the accident that resulted in the covered damages;
  3. the amount of the insured’s damages; and
  4. the other driver’s insurance coverage is deficient.

An insured first must establish that the insurer is liable on the contract before the insured can recover on extra-contractual claims against an insurer for failure to pay or settle a UIM insurance claim. Texas insurance law generally conditions recovery for bad faith and extracontractual claims on a recovery for breach of the insurance contract itself.

ABUSE OF DISCRETION

Echeverria alleged that, pursuant to the policy, United Financial was obligated to pay Echeverria UIM benefits for bodily injury caused by Lanausse-Ramos and Tachbaroute. Echeverria further alleged that, although she gave notice that she was seeking UIM benefits under the policy, United Financial failed to provide coverage. Yet, United Financial has no contractual obligation to pay Echeverria UIM benefits until Echeverria establishes the liability and underinsured status of Lanausse-Ramos.

The introduction of information on Echeverria’s extra-contractual claims during the trial on Echeverria’s breach-of-contract claim would be manifestly unjust. Requiring United Financial to try the extra-contractual claims with the breach-of-contract claim would not do justice, avoid prejudice, or further convenience. Therefore, the court of appeals concluded that the trial court abused its discretion by not abating Echeverria’s extra-contractual claims from her breach-of-contract claim.

NO ADEQUATE APPELLATE REMEDY

United Financial will lose the important right to have Echeverria’s extra-contractual claims tried with her breach-of-contract claim. An appellate court may consider whether mandamus will preserve important substantive and procedural rights from impairment or loss in determining whether the relator has adequate remedy by appeal.

When a bifurcated trial is denied in these circumstances, the insurer lacks an adequate appellate remedy for the time and money utterly wasted enduring eventual reversal of improperly conducted proceedings.

The Court of Appeal concluded that the trial court abused its discretion by denying United Financial’s motion to abate Echeverria’s extra-contractual claims and that United Financial does not have an adequate remedy by appeal. Accordingly, the Court of Appeal determined that United Financial is entitled to the requested relief and order the trial court to vacate its June 6, 2022 order denying United Financial’s motion to abate Echeverria’s extra-contractual claims and grant United Financial’s motion to abate the extra-contractual claims.

ZALMA OPINION

When a person brings a tort action against a person who allegedly rear-ended the car in which she was riding and claims underinsured motorist benefits before proving the defendant was underinsured it was manifestly unjust to claim bad faith when she failed to prove the other driver was underinsured. Bad faith claims do not belong in a trial seeking tort damages from a third party.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

 

Posted in Zalma on Insurance | Leave a comment

CLAIMS COMMANDMENTS

Claims Commandment VIII – Thou Shall Not Suffer Fraud to Succeed

See the full video at https://rumble.com/v1rzynm-claims-commandments.html  and at https://youtu.be/5ukWs_Y2jQU

Insurance fraud in the U.S. is epidemic. Insurance fraud continually takes more money each year than it did the last from the insurance buying public. Estimates of the extent of insurance fraud in the United States used to range from $87 billion to $308 billion every year. Recently, the Coalition Against Insurance Fraud changed its long-held estimate of $80 billion a year to $308 billion a year in 2022.

In truth no one really knows the extent of insurance fraud because most insurance fraud schemes succeed without the insurer even suspecting that it is being defrauded.

Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. No one will ever place an exact number on the amount lost to insurance fraud but everyone who has looked at the issue know – whether based on their heart, their gut or empirical fact of convictions for the crime of insurance fraud – that the number is enormous. When insurers and governments put on a serious effort to reduce the amount of insurance fraud the number of claims presented to insurers and the pseudo-insurers drops logarithmically.

What Do The Results of the Effort Against Fraud Really Show?

Insurance fraud prosecutions and investigations are anemic. What the reports do not tell is that most of those convicted were sentenced to probation. Few made full restitution and those who served time were few and far between. Insurance criminals are laughing at the insurance industry, the police agencies, the Fraud Divisions and the prosecutors. If they are one of the few criminally convicted, they face an average sentence of only five years’ probation and 60 days in jail. Jail time is usually served on weekends so that the convicted fraud perpetrators can still ply their fraudulent trade on weekdays.

For insurance fraud to be prosecuted the insurer must do the work to complete a thorough investigation that can be presented to a prosecutor because police, federal investigators, prosecutors and even Fraud Division investigators will do nothing until the case is presented to them in detail by an insurer. In fact, most states have statutes that compel insurers to maintain a Special Investigative Unit (SIU) to investigate fraud claims and provide the results of that investigation to the state Department of Insurance.

Every person involved in the business of insurance must understand that insurance fraud is the orphan child of the criminal justice system. Insurance fraud will never be totally defeated. It will be reduced and may be made unprofitable to the perpetrators when the public and prosecutors recognize that insurance fraud is a serious problem that effects their own financial condition.

Everyone involved in the business of insurance and everyone who buys insurance must make it clear that they are angry with what is happening to their insurance premium dollar. When I, and everyone who has ever purchased a policy of insurance, hear that $300 out of every $1,000 we pay in premium goes to a criminal we should all want to scream out the window, as did the character in “Network” — “I’m mad as Hell, and I’m not going to take this anymore!”

What is Fraud?

Insurance fraud is a tort, a civil wrong and a crime. Black’s Law Dictionary, 6th Edition, defines fraud as:

An intentional perversion of the truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right; a false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury.

In simple language, fraud can be defined as a lie told for the purpose of obtaining money from another who believes the lie to be true. Civil insurance fraud exists if an insured makes a representation to the insurer that the insured knows is false; conceals from the insurer a fact he or she knows is material to the insurer; makes a promise he or she does not intend to keep; and makes a misrepresentation on which the insurer relies in issuing the policy, that results in the insurer incurring damage.

The claims professional should be aware of the limitations of the criminal statute in the state where he or she practices.

Investigating Fraud

The beginning of a thorough insurance fraud investigation is the interview. The interview can be informal, it can be recorded with an audio recording device, it can be recorded with a handwritten statement signed by the witness, or it can be recorded by a certified shorthand reporter under oath. The interview is a structured conversation. It is not an interrogation. It is not the stuff of spy films, police investigations, or prisoner of war camps. Interviews are everywhere. Interviewing is an art. Use of methods similar to those used by scientists conducting experiments is a more accurate description of interviewing.

Conclusion

Whenever fraud is suspected it is the duty of the insurer, its claim staff and its special investigation unit (SIU) to conduct a thorough investigation. If a preponderance of the evidence gathered reveals that a fraud has been committed: that there was a material misrepresentation or a concealment of a material fact, made with the intent to deceive the insurer, that the insurer was actually deceived, and that the insurer was damaged by the deception, the claim must be rejected.

If a preponderance of the evidence does not exist or establishes there was no fraud the claim should be paid.

If you wish to know everything there is to know about insurance fraud, Barry Zalma has totally rewritten his seminal book on insurance fraud in two volumes.  Volume I is Available as a Kindle book; Available as a Hardcover;  Available as a Paperback  Volume II is Available as a Kindle bookAvailable as a HardcoverAvailable as a Paperback

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

CLAIMS COMMANDMENTS

Claims Commandment VII – Thou Shall Never Lie to an Insured

See the full video at https://rumble.com/v1s815y-claims-commandments.html and at https://youtu.be/ob_TI6UqP-s

Insurance is, and has been since the first policy was carved into a clay tablet, considered a business of the utmost good faith. The principle of utmost good faith (uberrimae fide) was, I believe, first stated in the English speaking world, in the British House of Lords by Lord Mansfield in 1766 in a case where he concluded that the duty of good faith rests upon both the insured and the insurer and held the insurer to its knowledge at the time the policy was signed. The insurer, like the insureds, took the premium, knowing the condition of the security provided, and could not upon loss claim the insurer was deceived. [Carter v. Boehm, 3 Burr 1905 (1766)]

As the old maxim says: “honesty is the best policy.” There is no excuse for an insurance claims professional to lie to an insured. Not only is a lie to an insured a failure to act with the utmost good faith, but it is also an action fraught with danger for the claims person and the insurer for whom he or she works. Keeping up a consistent lie is almost impossible. All definite statements can be corroborated or proven false by further investigation. If a lie is about a material fact, the falsehood will be proved to the expense of the insurer.

Lies to insureds — even when done for what the claims person believes is a good purpose — will invariably cause the insurer problems. Lies created on the run invariably include internal contradictions. A lie told to an insured can be, and most certainly will be, used by the insured to prove that the actions of the insurer were made intentionally and in bad faith such that the insurer will eventually be punished with punitive damages.

For example, in Allison v. Fire Insurance Exchange, 98 S.W.3d 227 (Tex.App. Dist.3 12/19/2002) a major punitive damage award was obtained by a plaintiff who presented evidence from the adjuster, who admitted she lied to the plaintiff about the authority to resolve a claim for mold damage. Although the case was reversed because of an excess verdict the lie cost the insurer a great deal of money when the case was eventually settled and started a spate of bad faith cases claiming refusal to pay for mold damage because of the excess and punitive judgment at the trial of the Allison case.

Claims people get into trouble when they fail to tell the truth to the insured about, among others, the following:

  • The check is in the mail.
  • There is no problem with coverage.
  • I will pay the fees of the lawyer of your choice.
  • The claim is being reviewed by senior management.
  • I need another 30 days to complete my investigations.
  • I need a copy of your policy.
  • I need you to go to all of the places where you bought the stolen property to get a receipt.
  • I will hire a contractor to rebuild your house.
  • I don’t have authority to settle your claim.
  • I don’t need to do an investigation to know your claim is not covered.
  • I have confirmed coverage.
  • Any other statement that is not true.

California Insurance Code Section 790.03(h)(1) provides:

Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices:

1. Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.

Similarly, the California Code of Regulations, 10 CFR 2695.4 provides:

(b) No insurer shall misrepresent or conceal benefits, coverages, time limits or other provisions of the bond which may apply to the claim presented under a surety bond.

This should be self-evident to anyone involved with insurance claims. It is a statement of prudent and common claims handling. Although this Regulation seems to apply only to surety bonds it also applies to any type of insurance. Nothing can be gained by an insurer concealing or misrepresenting information about the policy or the surety bond. Claims staff should be warned that violation of this regulation will be grounds for discipline and certain loss of employment.

On the other hand, proving that insurers and insured play the insurance claims game with a different set of rules, a mere oversight or honest mistake will not cost an insured his or her coverage; the lie must be wilful. [Claflin v. Commonwealth Ins. Co., 110 U.S. 81, 95-97, 3 S. Ct. 507, 515-16, 28 L. Ed. 76, 82 (1884)]

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

No Need for Fiduciary Relationship Between Agent and Insured

Insurance Agent Must Fulfill Requests Made by Insured

See the full video at https://rumble.com/v1rzphc-no-need-for-fiduciary-relationship-between-agent-and-insured.html and at https://youtu.be/Tgl1c14K66o

Donald Isken (“Mr. Isken”), sued Rick Galster III Insurance Agency, Inc. (“Galster Insurance”) seeking monetary damages for negligence, fraudulent inducement, and fraudulent misrepresentation. Galster Insurance moved to dismiss the complaint because: (1) Mr. Isken did not allege Galster Insurance owed him a fiduciary duty; (2) Mr. Isken did not plead fraud with particularity; and (3) Mr. Isken relied on representations outside the four corners of the contract.

In Donald Isken v. Rick Galster III Insurance Agency, Inc., No. N22C-04-170 FJJ, Superior Court of Delaware (November 3, 2022) the court explained the relationship between insured and insurance agent.

FACTUAL BACKGROUND

Galster Insurance is a third-party broker agency that sells, solicits, and negotiates insurance on behalf of its clients in exchange for compensation. Mr. Isken owns property in Wilmington, Delaware (the “Insured Premises”).

Nationwide Insurance Company covered the Insured Premises via a homeowner insurance policy (“the Nationwide Policy”) until September 2018, when Nationwide elected not to renew the policy. Mr. Isken contacted Galster Insurance and instructed its agent broker, Rick Galster III (“Mr. Galster”), to obtain new coverage for the Insured Premises on equivalent terms as the Nationwide Policy. Galster Insurance secured a replacement policy (“the Replacement Policy”) through Scottsdale Insurance Company.

Nearly two years later two storms hit the Insured Premises. Consequently, the Insured Premises sustained loss of electricity for several days. Without electricity, the Insured Premise’s sump pump failed and one foot of water flooded into two fully furnished living spaces in the lower-level living area. All told, the cost of restoring the damaged areas to their previous condition exceeded $100,000.

When Mr. Isken informed Galster Insurance of the damage, Mr. Galster advised Mr. Isken to immediately file a claim under the Replacement Policy. Mr. Isken did so. However, through his conversations with the in-house claims adjuster for Scottsdale Insurance Company, Mr. Isken learned the Replacement Policy only provided $5,000 worth of coverage for water damage, instead of the $50,000 he instructed Galster Insurance to obtain.

ANALYSIS

Galster Insurance’s Duty to Mr. Isken

Galster Insurance argued that Mr. Isken’s professional negligence claim must fail because Mr. Isken did not plead and prove Mr. Galster owed him a fiduciary duty.

Ordinarily, an insurance agent assumes only those duties normally found in an agency relationship. This includes the obligation to use reasonable care, diligence, and judgment in procuring the insurance requested by the insured. The agent assumed no duty to advise the insured on the specific insurance matters merely because of the agency relationship.

A fiduciary relationship is not a required element in every negligence case between an insured and an agent.  Generally, an insurance agent does not have a duty to advise a client with respect to appropriate insurance coverage. This general rule, however, does not apply if the agent voluntarily assumes the responsibility for selecting the appropriate coverage or if the insured makes an ambiguous request for coverage that requires clarification.

To the extent there is any doubt in Delaware jurisprudence the Delaware Court will not require a plaintiff to plead the existence of a fiduciary relationship if an agent allegedly fails to follow the specific instructions of the insured.

Mr. Iskin has well-pled that he explicitly instructed Mr. Galster to replace the Nationwide Policy with equivalent coverage. Because Mr. Galster owed Mr. Iskin a duty to follow these instructions (even absent a fiduciary relationship between the two), the Court refused to dismiss this count of the complaint.

The Negligent Misrepresentation Pleading Requirements

Galster Insurance also argued Mr. Isken had not adequately pled the prima facie elements of fraud under Delaware law. The Court disagreed. The three minimum pleading requirements a fraud claim must meet under Superior Court Civil Rule 9(b) to survive dismissal the alleged misrepresentations must:

  • be enumerated;
  • identify the parties to the conversation; and
  • set out the content of the discussions with sufficient particularity to place the party on notice of the precise misconduct with which it is charged.

Mr. Isken specifically instructed Mr. Galster to acquire a policy identical to the Nationwide Policy. The Court found the substance of the discussion laid out the elements of fraud with sufficient particularity.

The Four Corners of the Contract

Finally, Galster Insurance contends Mr. Isken’s fraudulent inducement claim must fail because the claim relies on representations made by Mr. Galster outside the four corners of their contract. Mr. Isken’s reliance on extra-contractual representations, so claims Galster Insurance, ran afoul of this Court’s “bootstrap doctrine”.

A fraud claim can be based on representations found in a contract, however, “where an action is based entirely on a breach of the terms of a contract between the parties, and not on a violation of an independent duty imposed by law, a plaintiff must sue in contract and not in tort.” A plaintiff “cannot bootstrap” a claim for a breach of contract into a claim of fraud merely by alleging that a contracting party never intended to perform its obligations or “simply by adding the term fraudulently induced to a complaint.”

Essentially, a fraud claim alleged contemporaneously with a breach of contract claim may survive, so long as the claim is based on conduct that is separate and distinct from the conduct constituting breach.

Mr. Isken did not allege Galster Insurance breached their contract; rather, his claim was rooted in Mr. Galster’s breach of duty owed to him in tort alone and independent of their contract. The Court refused to dismiss the fraudulent inducement claim under that theory.

ZALMA OPINION

Sometimes a little knowledge can get an insurance agent in trouble with a court. When an insurance agent is given a simple and direct instruction to replace one policy with anther that provides identical coverage, failure to fulfill the request is a breach of the duty imposed on insurance agents and can result in tort liability for the failure. The negligent failure cost the insured, at least, $45,000, and by claiming he had replaced the Nationwide policy with an identical Scottsdale policy is both negligent and appears to be fraudulent. The trial, if not settled, would appear to be interesting.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

 

Posted in Zalma on Insurance | Leave a comment

Claims Commandments

Claims Commandment VI

Thou Shall Document The Claims File

See the full video at https://rumble.com/v1raut0-claims-commandments.html and at https://youtu.be/oOdyMfoNnH8https://www.youtube.com/watch?v=yTbQ3OdGaKw 

Most insurance regulators, by Fair Claims Settlement Practices statutes and Regulations, require that every insurer maintain claim files that are subject to examination by the regulator or by his or her duly appointed designees. The regulator requires that the claim files must contain all documents, notes and work papers (including copies of all correspondence) which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed and the insurer’s actions pertaining to the claim can be determined.

Insurance company management needs the same ability to determine that the claims people are doing what they are expected to be done to keep the promises made by the insurance policy and resolve all clams fairly and in good faith.

In simple language everything the claims person does should be recorded in the claims file, whether kept in a computerized system or a paper file. Every document collected, every photograph taken, every video recorded, every letter written, every e-mail sent, and notes of every telephone conversation should be recorded in the claims file.

Because the United States is now considered to be a litigious society, every comment and note made in a claims file should be written in a form the claims professional will be willing to read aloud in a court of law to the Ladies and Gentlemen of the Jury or to an investigator for the state.

The information in the claims file must be maintained so that the claim data are accessible, legible and retrievable for examination by claims management and/or the state Department of Insurance. The claims file is also maintained so that an insurer shall be able to provide the claim number, line of coverage, date of loss and date of payment of the claim, date of acceptance, denial or date closed without payment. This data must be available for all open and closed files for the current year and for, at least, the four succeeding years.

All file destruction practices should be reviewed to ascertain that no file will be destroyed less than five years after it is opened nor less than four years after it is closed. Insurers should also maintain procedures to never destroy a file if litigation has started or is anticipated until after the litigation is resolved.

A diary system for the destruction of old files should be established by the insurer and its claims personnel with a requirement to keep the files at least two years longer than the regulator requires as an extra precaution.

If the files are scanned into computer media, microfilmed, or recorded in a method other than paper backups off site backups of the files should also be maintained.

The claims person must record in the file the date the claims person received, date(s) the document was processed and date the licensee transmitted or mailed every material and relevant document in the file. Insurers should save and maintain hard copy files or maintain claim files that are accessible, legible and capable of duplication to hard copy from electronic backups.

The insurer should provide a date stamp to each claims person so that the date of each action will be recorded in the file if kept on paper. If the insurer is “paperless” all incoming mail and documents must have imbedded in the image a date showing when the document was received. A mail log should also be maintained to establish dates of mailing of each document.

If the insurer uses computer generated e-mail and logging the computer should be programmed to record the date and time of each entry in such a manner that the claims person cannot modify or change the dates of any entry. All e-mail communications must be saved for up to five years in a searchable database or in connection with the electronic claims file.

All electronic records must be kept in such a manner that would allow a complete copy of the electronically recorded record to be printed out in full so that it is available to produce to the regulator or the insurer’s supervisory personnel or to counsel and an appointed expert, or in discovery if litigation occurs.

The key for the claims person is, if in doubt about putting information into a claim file, always put the information in and never fail to record actions that relate in any substantial way to the file, the adjustment of the claim or the investigation conducted by the claims person.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

Double Jeopardy Eliminates Three of Four Convictions

Single Insurance Fraud Conviction Remains

See the full video at https://rumble.com/v1raigk-double-jeopardy-eliminates-three-of-four-convictions.html  and at https://youtu.be/Vo6bEJ3yaiY

In The People of the State of Colorado v. Natasha Earnce Robinson, No. 19CA1768, 2022 COA 124, Court of Appeals of Colorado, Third Division (October 27, 2022) prosecutors found that they overcharged a defendant but her conviction for insurance fraud remained.

Natasha Earnce Robinson appealed the judgment of conviction entered on jury verdicts finding her guilty of four counts of insurance fraud and one count of false reporting to authorities. She contended, among other things, that because her four convictions for insurance fraud are based on a single insurance claim, those convictions are multiplicitous in violation of double jeopardy principles.

To resolve her appeal the Court of Appeals addressed an issue of first impression in Colorado and held that, when a defendant is convicted for one count of presenting a fraudulent insurance claim, and for one or more counts of making false statements in support of the same insurance claim, the prohibition against double jeopardy and multiplicity will generally require the conviction (or convictions) to merge.

In this case, the insurance fraud statute, the complaint and information filed by the prosecution, and the evidence and argument presented at Robinson’s trial all support the conclusion that her three convictions for making false statements must merge into her one conviction for insurance fraud.

BACKGROUND

According to the prosecution’s evidence and theory of guilt, Robinson purchased a car but did not initially buy insurance coverage for it. Two weeks later, Robinson’s boyfriend and cousin were driving the uninsured car and knocked over a stop sign, causing heavy damage to the car. Later that day, Robinson bought insurance coverage for the car. A few days later, Robinson reported to police that her car had been stolen and that it had no prior damage. She also filed a claim for insurance coverage based on the alleged theft. During two recorded telephone calls with her insurance company, as well as one recorded telephone call with a police detective, Robinson lied about her car being stolen and not knowing who took it. She repeated those lies in the affidavit she submitted to her insurance company.

Following the trial, the jury found Robinson guilty of four counts of insurance fraud and one count of false reporting to authorities.

The trial court entered judgment of conviction and sentenced Robinson to concurrent terms of three years’ probation.

MULTIPLICITY IN VIOLATION OF DOUBLE JEOPARDY

Robinson contends that her four convictions for insurance fraud are multiplicitous in violation of double jeopardy principles because they are based on a single insurance claim. The Court of Appeals agreed.

Standard of Review, Preservation, and Standard of Reversal

Whether convictions must be merged because they are multiplicitous in violation of double jeopardy principles is a question of law.

The double jeopardy issue presented here is whether Robinson’s multiple insurance fraud convictions are based on alternate ways of committing the same offense. The district court addressed that very issue, concluding that the offenses are “separate,” although it ultimately ruled that concurrent sentences were appropriate.

General Law Regarding Units of Prosecution, Multiplicity, and Double Jeopardy

Unless a statute expressly authorizes otherwise, the Double Jeopardy Clauses of the United States and Colorado Constitutions protect against multiple punishments for the same offense.

Multiplicity may implicate double jeopardy principles if a statute creates alternate ways of committing the same offense. In these situations, whether multiple punishments are permissible entails a determination of the legislatively prescribed unit of prosecution. The unit of prosecution is the way a criminal statute permits a defendant’s conduct to be divided into discrete acts for purposes of prosecuting multiple offenses.

To determine the unit of prosecution for a particular offense, the Court of Appeal looks exclusively to the statute defining the offense. After determining the statutory unit of prosecution, double jeopardy analysis requires the court to consider whether the defendant’s conduct constitutes factually distinct offenses, that is, whether the conduct satisfies more than one defined unit of prosecution.

Application

Robinson’s four convictions for insurance fraud are multiplicitous in violation of double jeopardy principles, and that her three convictions for making false statements under section 18-5-211(1)(e) must merge into her one conviction for insurance fraud.

The insurance fraud statute requires that when a number of acts are joined as a disjunctive series, in a single sentence, without any attempt to differentiate them by name or other organizational device, a legislative intent to permit separate convictions and sentences for each enumerated act is not so readily apparent. To the contrary, by joining alternatives disjunctively in a single provision of the criminal code, the legislature intended to describe alternate ways of committing a single crime rather than to create separate offenses.

Robinson’s was based on her presenting an insurance claim that contained false material information. Her three convictions under a different section were based on her presenting three statements containing false material information in support of the insurance claim. Robinson’s false statements were part and parcel of her fraudulent insurance claim.

Robinson’s three convictions were based on two telephone calls with her insurance company and an affidavit she completed for the company. But what if the insurance company had a more exhaustive process that involved more telephone calls and more forms to fill out? All those countless communications could lead to countless convictions while still being based on only one insurance claim.

The issue before the appellate court is distinct from a multiplicity issue that arises when a statute defines a crime as a continuous course of conduct.

Third, the way the prosecution presented its case at trial supports the decision. Notably, the prosecutor began his closing argument by emphasizing that Robinson made the same false statements “over and over again” on “call after call” “[t]o get [insurance] coverage for her car.” The prosecutor added that Robinson told the “same story” in her affidavit.

In rebuttal closing, the prosecutor stayed the course, arguing that Robinson’s repeated false statements to her insurer.

For all these reasons, the appellate court concluded that the district court erred by entering judgment of conviction and sentence on multiple counts of insurance fraud, and that Robinson should stand convicted of just one count of insurance fraud under the statute.

Evidentiary Issue

The judgment was affirmed in part and reversed in part. Robinson’s insurance fraud conviction was affirmed. Robinson’s three insurance fraud convictions were reversed, and the case is remanded for the district court to vacate those three convictions and sentences.

Although the jury found Robinson guilty of the defense’s proposed lesser nonincluded offense of false reporting to authorities, this conviction does not appear on the district court’s sentencing order. To the extent Robinson stands convicted of that offense, she does not challenge that conviction on appeal.

ZALMA OPINION

There was no question that the defendant committed insurance fraud by insuring a car after an accident and then reporting it stolen to collect even though it was damaged before the policy came into effect. She lied to the insurer and the police often and with alacrity. Regardless, she only committed one crime – insurance fraud – and the charge of additional counts for false statements made in the presentation of the false claim was surplusage and duplicitous. Her sentence was for probation and she stood convicted of one crime, not four.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

Claims Commandments

Claims Commandment Number V

See the full video at https://rumble.com/v1r3q4q-claims-commandments.html and at https://www.youtube.com/watch?v=UoQ4qKpJnnc

In this the fifth of Fifteen Claims Commandments we deal with the need for every insurance claims professional to work with the first party property insured.

Thou Shall Work With the First Party Insured

The key to resolving insurance claims amicably is constant and substantive communication between the insured and the adjuster. Communication about the claim on a regular basis allows the insured and the adjuster to build rapport.

Building rapport is a fundamental aspect of human communication.  Being able to build rapport could be viewed as a basic element of social intelligence. The professional should first spend time establishing rapport and the confidence of the person being interviewed. there are four elements of building rapport.

People who wish to build rapport should strive to:

  • build trust, such as demonstrating honesty, reliability, and fairness,
  • understanding another person’s views, such as making statements that the professional understands how the other person feels,
  • show respect, that is, be polite and express gratitude, and
  • be the kind of person who others would like by stating a willingness to be empathetic and altruistic.

A claims situation where the adjuster fails to establish rapport with the insured is doomed to fail. Rapport is a relationship marked by harmony, conformity, accord, or affinity.

Rapport can be established by the professional complimenting the office decor, if possible, to do so honestly. However, if the insured is relegated to a drab cubicle, rapport can be established by the professional commiserating with the difficulty of working in less than comfortable surroundings. The adjuster can gain rapport with the insured might also explain that his employer also forces the adjuster to work in a similar situation.

The adjuster, to establish rapport, should delay questioning by trying to find mutual interests and concerns with the person to be interviewed. The task of establishing rapport can take minutes or hours. It is imperative that to complete a successful adjustment sufficient time must be expended establishing rapport before the serious and detailed part of the interview begins. Regardless of the skill of the adjuster, if rapport is not established, the goal of the adjustment will not be reached.

Once rapport is established it is essential that the adjuster maintains rapport with the insured by setting up an ability to communicate regularly with the insured. The insured should be provided with the adjuster’s office telephone number, the adjuster’s cell phone number, and an e-mail address where the insured can reach the adjuster to resolve any questions that might come to mind.

The adjuster, even if not asked a question by the insured after rapport is established, should mark a diary to communicate with the insured at least once every thirty days even if the communication is nothing more than a telephone call that simply asks how the insured is doing. If possible, the adjuster should also fill in the insured on the progress of the claims investigation and any events happening.

Contact in person is preferable but caseloads for most modern insurers does not allow for continuous personal contact. If such contact is not available the contact should be by telephone, mail, or e-mail.

For example, if the insured has been sued by a third party, the adjuster should explain what is happening and what will happen in the lawsuit including the appointment of counsel to defend the insured. When defense counsel files an answer to the suit the adjuster should deliver a copy of the answer to the insured, explain the meaning of the language in the answer, and what defense counsel expects to do next to protect the interests of the insured. Each communication should be noted in the file. At least every 30 days some communication must pass between the adjuster and the insured and noted in the adjuster’s file whether the communication is substantive or merely an effort to keep up the rapport between the insured and the adjuster.

For example, if the claim relates to a fire at the insured’s home, the adjuster, after establishing rapport should present to the insured a schedule of the time needed to determine the scope of damage, set a time for meeting with the insured, an independent contractor, and the insured’s contractor. The meeting should take place quickly with everyone ready to work.

The adjuster, the experts and the insured should then agree on the scope of loss and the adjuster should explain how long it will take the contractors to create an estimate of repair. When the estimates arrive, the adjuster should prepare a comparison of the estimates and meet with the insured to determine the differences between the two or more contractors.

The insured and the adjuster should then agree on the contractor whose estimate covers the entire loss and a contract should be agreed to repair the house. As repairs proceed the adjuster should inspect the work and regularly advise the insured of the progress of the repair regularly until the repair is completed.

The Fair Claims Settlement Practices Regulations set minimum, not maximum, standards. Adjusters should, and are expected to, exceed the minimum standards set by the Regulations. Insurers now find — in bad faith litigation — that trial lawyers will posit violation of the minimum standards set by the regulations as evidence of bad faith sufficient to allow a trier of fact to assess tort damages against the insurer. Since the Regulations are stated to be minimum claims handling standards, failure to comply will give a judge or jury the opportunity to contend that the failure to comply is evidence of tortious conduct sufficient to support a claim that the insurer committed the tort of bad faith.

The adjuster must be familiar with the Fair Claims Settlement Practices statutes and Regulations in his or her state with regard to communications to the insured and work to exceed the requirements.

The adjuster who establishes and maintains rapport with the insured will resolve more claims quickly and without difficulty and will never face the wrath of a supervisor or auditor from the state for failure to fulfill the minimum claims handling standards but will always exceed the minimum standards.

The adjuster that fails to communicate regularly and substantively with the insured will have difficulty reaching agreement with the insured and will find that he or she is accused of violating the fair claims settlement statutes requirements or the regulations created to enforce the statutes. That failure may also result in litigation between the insured and the insurer.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com

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

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

Posted in Zalma on Insurance | Leave a comment

MRI Machine Explodes

No Coverage if Injuries not Related to Use of MRI

See the full video at https://rumble.com/v1r49h4-mri-machine-explodes.html and at https://youtu.be/pCR8R9o29RY

In John Fitzpatrick and Colleen Fitzpatrick v. Oradell Animal Hospital, Inc., et. al, No. A-3442-20, Superior Court of New Jersey, Appellate Division (November 1, 2022) Plaintiffs John Fitzpatrick and Colleen Fitzpatrick appealed from a June 17, 2021 order granting summary judgment in favor of defendant Continental Casualty Company (Continental).

Plaintiff sustained injuries on March 6, 2015, when a magnetic resonance imaging (MRI) machine installed at defendant Oradell Animal Hospital (Oradell) exploded. Oradell leased the MRI machine from defendant Advanced Veterinary Technologies, Inc. (AVT). On December 17 Oradell and AVT signed an agreement to lease the MRI machine (lease agreement), with a five-year renewal option, beginning on April 1, 2004.

The lease agreement required AVT to install the MRI machine at Oradell’s facility. At the end of the term, the lease agreement provided “AVT shall deinstall, inspect, test, pack, remove and ship the [MRI machine] at AVT’s expense.” The lease agreement also stated AVT was responsible for “the repair of any damage to [Oradell’s premises] on account of the removal of the [MRI machine] . . . .” Additionally, the lease agreement required Oradell to maintain insurance for “loss or theft of, or damage to, the [MRI machine] in the amount of $550,000, naming AVT as an additional insured and a loss payee . . . .”

Oradell complied with this provision by purchasing insurance from Continental. Continental issued a commercial insurance policy (Policy) to Oradell, covering the period September 21, 2014 to September 21, 2015. Under the “Coverages” section of the Policy, Continental agreed to “pay those sums that [Oradell] becomes legally obligated to pay as damages because of ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ to which this insurance applies.”

While decommissioning the MRI machine, Hogan testified he “pick[ed] something up off the ground” and was surrounded by a “white cloud of helium.” A split second later, the MRI machine exploded. The next thing Hogan remembered was “waking up on the ground.” Plaintiff and Hogan suffered injuries from the explosion.

On August 31, 2017, plaintiffs filed a third amended complaint against Oradell, Helpern, AVT, Hogan, and others. On February 22, 2018, Hogan filed a crossclaim against Continental, seeking insurance coverage under the Policy.

After completing discovery, including depositions, Hogan moved for summary judgment, asserting Continental had an obligation to provide him with insurance coverage for plaintiffs’ claims. Plaintiffs joined Hogan’s motion.

Decisions on Summary Judgment

The motion judge heard oral argument on November 9, 2018. In an eight-page written decision, the judge found Hogan’s “actions did not arise out of Oradell’s maintenance, operation or use of the MRI machine,” because Hogan was decommissioning the MRI machine on the date of the explosion. Additionally, the judge found “no substantial nexus between the plaintiff’s injuries/Hogan’s conduct and any negligent maintenance, operation or use of the MRI machine by Oradell.” To the contrary, the judge concluded the decommissioning of the MRI machine was “the antithesis of the maintenance, operations and/or use of the MRI.”

After a proof hearing, the judge entered a June 14, 2021 judgment in favor of plaintiffs and against AVT, awarding damages in the amount of $1,383,555.67 to John Fitzpatrick and $115,296.31 to Colleen Fitzpatrick.

Analysis

The court concluded that here is no ambiguity regarding the phrase “written contract or agreement” as used in the Policy. The fact that litigants offer conflicting interpretations of policy language does not render the policy language ambiguous. A genuine ambiguity arises only when the phrasing of the policy is so confusing that the average policy holder cannot make out the boundaries of coverage.

Moreover, equipment is only decommissioned upon the expiration of the lease term. As stated in the lease agreement, “[a]t the scheduled conclusion of this [lease], . . . AVT shall deinstall, . . . remove, and ship the [MRI machine] . . . .” Under the express terms of the lease agreement, the lease must terminate before decommissioning begins.

For Hogan to be eligible for coverage under the Policy, there had to be a substantial nexus between plaintiffs’ injuries and Oradell’s maintenance, operation, or use of the MRI machine. The uncontroverted evidence demonstrated no Oradell employee was in the room when the MRI machine exploded. Nor had any Oradell employees participated in the two-day decommissioning process prior to the explosion.

On this record, there is no evidence Oradell maintained, operated, or used the MRI machine after March 4, 2015. Thus, the judge properly granted summary judgment to Continental.

ZALMA OPINION

It is always interesting and encouraging to see a court opinion where the court read every word of the insurance policy, noted that for coverage to apply the entity seeking insurance must maintain, operate or use the exploding MRI machine. Since they were nowhere near the machine, had nothing to do with it being decommissioned, the lease was terminated, they were not insured at the time of the explosion since it was in the control of the lessor who was working to decommission of the MRI.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

Claims Commandments

Claims Commandment Number IV

Thou Shall Understand The Policy

See the full video at https://rumble.com/v1r36zk-claims-commandments.html  and at https://www.youtube.com/watch?v=mYV1yv2TnAo

In this the fourth of Fifteen Claims Commandments we deal with the need for every insurance claims professional to read and understand the terms and conditions of the policy that made promises to an insured who is presenting a claim.

Insurance Policies are Contracts

Insurance policies are contracts. To understand insurance claims the adjuster must understand how all contracts, and specifically insurance contracts, are interpreted. Rules of contract interpretation have developed over the last 300 years and are applied by courts with the intent to fulfill the desires of all parties to the contract.

People and judges who are not conversant in insurance and the interpretation of insurance contracts believe that the insurance policy is difficult to read and understand. They are wrong. However, as one court said in Delancy v. Rockingham Farmers Mutual, 52 N.H. 581 (1873):

This [policy], if read by an ordinary man, would be an inexplicable riddle, a mere flood of darkness and confusion … should some extremely eccentric person attempt to examine the involved and intricate net in which he was to be entangled, he would find that it is printed in such small type and in lines so long and crowded as to make the perusal of the document physically difficult, painful and possibly injurious.

Since 1873 insurance policies are printed in large print and in language, by statute, that anyone with a fourth grade education can understand. Still, there seem to regularly be disputes taken to court about the meaning of terms, conditions and limitations of the policy of insurance.

The following rules govern the construction of contracts of insurance:

  • If the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed at the time of making it, that the promisee understood it.
  • If a written contract is so worded that it can be given a definite or certain legal meaning, then it is not ambiguous. However, if the language of a policy or contract is subject to two or more reasonable interpretations, it is ambiguous.
  • When a policy is interpreted, the provisions of an endorsement control the interpretation over the body or declarations of a policy when the two are in conflict.

For example, if the language written to limit an insurer’s liability to the appraised value appears on the declarations page, while the valuation condition that provides for an actual cash value adjustment appears on a form endorsed to the contract, the endorsement’s language would control the interpretation of the contradictory language of the policy.

However, the fact that the two sentences could have been written more clearly, did not mean that they were ambiguous.

Reasonable Expectations

Consider the reasonable expectations of the insured but, when doing so, include the understanding that every insurer is presumed to be acquainted with the practice of the trade that the insurer insures.

More than 150 years ago the US Supreme Court in Hazard’s Administrator v. New England Marine Insurance Co., 33 U.S. 557 (1834) adopted the rule. The Supreme Court concluded that “no injustice is done if insurers are presumed to know their insureds’ industry because it is part of their ordinary business.”

In MacKinnon v. Truck Ins. Exch., 31 Cal.4th 635 (2003), the California Supreme Court first stated the primacy of the “reasonable expectations” test when interpreting insurance policies. It decided that the reasonable expectations of the insured required coverage to exist for an ordinary act of negligence even if it involved pollutants.

Where the language of the policy is clear, the language must be read accordingly, and where it is not, it must be read in the sense that satisfies the hypothetical insured’s objectively reasonable expectations.

If you find the term is clear and unambiguous there will be no need to apply the reasonable expectations test.

If you find any ambiguity, or determine the insured should be paid, the application of the reasonable expectations test will give a court the ability to construe the policy against the insurer and in favor of payment of the insured’s claim.

The Plain Meaning Test

Most states will apply the plain meaning test.

Long-established insurance law supports the conclusion that insurers are presumed to know and be bound by the meaning of the terms used and customs adopted in their insureds’ industries. Insurers, and insurance claims professionals, faced with a need to understand and apply the wording of a policy of insurance must now conduct their investigation to include:

  • a detailed investigation of the facts of the loss and policy acquisition;
  • a determination of the expectations of the insured and the insurer at the time the policy was acquired;
  • a determination of the purposes for which the policy was acquired; and
  • an examination of all communications between the insurer and the insured or their representatives.

To conclude a thorough investigation the insurer must at least conduct a detailed interview of the insured, the claimants, the brokers, and the underwriters. When there is a dispute over the meaning of common terms, the court will often find it necessary to inform upon the understanding of persons in the particular business insured so that the judge must consult the opinions of experts.

Expert testimony can be helpful in establishing that the insured’s or the insurer’s interpretation of the term at issue is different from that advanced by the other was reasonable. In California, this may be sufficient for a party to prevail because although insureds are treated differently so that even if the insurer’s interpretation is considered reasonable, it would still not prevail, for in order to do so it would have to establish that its interpretation is the only reasonable one.

An insurance claims professional can never make, or recommend, a decision with regard to an insurance claim until he or she has read the entire policy as it relates to a loss, interpret the policy wordings in accordance with the rules of interpretation stated above, conduct a complete and thorough investigation to determine the reasonable expectations of the insured, and if unable to decide to seek the advice of competent coverage counsel.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

 

Posted in Zalma on Insurance | Leave a comment

Don’t Hide Issue Until Trial

Insurer Entitled to Notice of Reformation Claim Before Trial

See the full video at https://rumble.com/v1qy7gs-dont-hide-issue-until-trial.html and at https://youtu.be/joEeZetLAjM

At trial on the breach of contract action plaintiffs sought to amend their complaint to include an otherwise untimely reformation claim based on mutual mistake and a preexisting oral agreement. In 34-06 73, LLC, et al. v. Seneca Insurance Company, 2022 NY Slip Op 06029, No. 81, New York Court of Appeals (October 27, 2022) the insurer appealed the reformation of its policy sought for the first time at trial.

FACTS

Seneca Insurance Company issued plaintiffs 34-06 73, LLC, Bud Media, LLC, and Coors Media, LLC a multi-million dollar, written insurance policy covering several of plaintiffs’ vacant commercial properties. The parties do not dispute the contents of the policy, only whether plaintiffs’ complaint asserting breach of contract and seeking damages put defendant on notice of the transactions or occurrences underlying plaintiffs’ belated claim to reform the policy to eliminate the condition that supported the claim denial.

The policy, as issued, included a Protective Safeguards Endorsement (“PSE”) that required plaintiffs, among other things, to maintain an automatic sprinkler device on the subject property as a material condition precedent to coverage.

Approximately one month after the policy went into effect, defendant’s agent conducted an inspection of the premises and issued a report to plaintiffs’ principal and sole owner, Mohammad Malik, advising him that there was no compliant sprinkler system on the premises and recommending that plaintiffs notify the insurer defendant of the system’s non-operability. Malik did not do as advised.

A little more than four months later, there was a fire on the premises and plaintiffs requested payment under the policy for damages incurred. Defendant notified plaintiffs that it was denying the claim under the PSE because plaintiffs did not maintain a working sprinkler system.

Plaintiffs sued for breach of contract, seeking over $2.4 million in damages based on defendant’s failure to cover the fire loss.

At trial, for the first time, plaintiffs argued that the written policy did not reflect the parties’ agreement. Malik testified that he told his insurance broker that he did not want the policy to include a protective safeguard endorsement because the properties were vacant buildings or lots, and most did not have sprinklers. However, he admitted that he did not read the insurance policy. Defendant’s Vice President of Underwriting, Carol Muller, testified that an underwriting file disclosed during discovery did not contain documents referencing the PSE or the sprinkler system, that the premiums quoted for the Policy were for a non-sprinklered building, and that the inclusion of the PSE may have been a mistake.

After plaintiffs rested, they orally moved to amend the complaint to conform the pleadings to the proof by adding a claim for reformation. The court granted plaintiffs’ motion, concluding that the claim related back to the complaint because it was “part of the whole thrust of the complaint originally” and the jury should decide whether the PSE’s inclusion resulted from a mutual mistake.

The jury returned a verdict in favor of plaintiffs on the reformation claim, finding that plaintiffs established by clear and convincing evidence that the parties’ true agreement was a policy without a PSE and it was a mutual mistake to include the PSE in the policy.

Defendant maintained that the complaint alleged only nonperformance and contained no indication that the contract failed to reflect the parties’ intent. Defendant also asserted surprise and prejudice. Regardless, the Appellate Division affirmed the judgment in the plaintiffs’ favor, holding that the court providently granted plaintiffs’ application to conform the pleadings to the trial evidence to assert a claim for reformation.

ANALYSIS

Applications to amend pleadings are within the sound discretion of the court and exercise of such discretion may be upset by an appellate court only for abuse as a matter of law. However, the high court concluded that there was no sound basis in law to grant amendment to add an untimely claim.

It was undisputed that when plaintiffs sought to amend their complaint the statute of limitations on the reformation claim had expired and was therefore time-barred unless it related back to the original pleading. Plaintiffs’ reformation claim will only relate back to the original complaint – and is thus not barred by the statute of limitations – only if the complaint placed defendant on notice of the transactions, occurrences, or series of transactions or occurrences, to be proved in support of that claim.

To plead reformation, a plaintiff must allege sufficient facts supporting a claim of mutual mistake, meaning that “the parties have reached an oral agreement and, unknown to either, the signed writing does not express that agreement”. New York recognizes a heavy presumption that a deliberately prepared and executed written instrument manifests the true intention of the parties, the proponent of reformation must show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties.

In plaintiffs’ complaint they failed to give notice to defendant of the transactions or occurrences on which plaintiffs based their reformation claim.

In their original complaint, plaintiffs reference a specific written policy which they identified as the parties’ agreement and which they allege defendant breached. The complaint further alleged that plaintiffs complied with all of the conditions precedent and subsequent pursuant to the terms of the subject policy. The latter allegation is fatal to plaintiffs’ assertion that the complaint provides notice of the transactions or occurrences to be proved in support of a reformation claim. In fact, if anything, it suggests the opposite because, by asserting total compliance with the policy (as issued) and its conditions plaintiffs necessarily disclaimed any challenge to the policy’s terms, specifically the PSE.

The reformation claim, as advanced by plaintiffs, was based on a purported oral agreement negotiated by Malik with the broker that preceded the contract’s formation, whereas the breach of contract claim in the original complaint was based on the written policy which includes the PSE and with which plaintiffs alleged full compliance. Therefore, nothing in the stand-alone breach of contract claim put defendant on notice that there was a prior oral agreement that excluded the PSE and that the PSE’s inclusion in the written policy was a mistake.

Plaintiffs’ complaint foreclosed a factual or inferential basis for notice of mutual mistake notice by unqualifiedly alleging that they “complied with all of the conditions precedent and subsequent pursuant to the terms of the subject policy.”  The complaint contained no alternate theory of recovery or factual allegations based on pre-formation transactions or occurrences. The complaint therefore only put the defendant on notice of transactions or occurrences related solely to the written policy and plaintiffs’ total compliance with that agreement’s terms, which include the PSE’s sprinkler requirement.

As a result the reformation claim cannot relate back to plaintiffs’ original pleading because it only alleged compliance with the policy as written and the trial court abused its discretion as a matter of law when it granted plaintiffs’ motion to amend to include this time-barred claim.

Plaintiffs’ motion to amend the complaint to include a reformation cause of action was denied, and the case was remitted to Supreme Court (trial court), New York County, for entry of judgment in accordance with the opinion herein.

ZALMA OPINION

The plaintiff insured and counsel made a decision at the time the suit was filed to sue only for breach of contract although the plaintiff knew he felt the policy issued was not what he ordered and when he was told of the error – before the fire – did nothing to correct the terms and conditions of the policy. Rather than dispute the PSE as an error he sued claiming he had complied with the condition that he was advised did not exist. Only later, during trial did he seek reformation. The trial court erred allowing reformation because the defendant was not given notice of the equitable claim and was sandbagged and unable to do discovery or bring in evidence to counter the claim. Malik’s failure to react to the advice about the condition requiring PSE and that he lacked appropriate PSE defeated his claim.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

Claims Commandments

Claims Commandment III: Thou Shall Communicate Often With The Third Party Insured and the Claimant

 

See the full video at https://rumble.com/v1qrtao-claims-commandments.html and at https://youtu.be/V012MEVobJo

Insurance claims is a service business. The claims person – whether acting for the insurer or the insured – provides a service to the insured and the insurer. Communication is essential to providing the service promised by the insurance policy.

In some states, like California, communications are required by regulation:

Every insurer shall disclose to a first party claimant or beneficiary, all benefits, coverage, time limits or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by the claimant. When additional benefits might reasonably be payable under an insured’s policy upon receipt of additional proofs of claim, the insurer shall immediately communicate this fact to the insured and cooperate with and assist the insured in determining the extent of the insurer’s additional liability. [10 CCR 2695.4 (a)]

This means that the initial written contact with an insured in a first party property claim should advise the insured of all benefits, coverage, time limits, or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by a first party insured.

When a claims person receives any communication from an insured, third party claimant, or a representative of the insured or claimant regarding a claim that reasonably suggests that a response is expected, he or she should immediately after receipt of that communication furnish the claimant with a complete response based on the facts as then known by the claims person. Some regulations allow the claims person up to 20 days to respond. Good claims handling requires an immediate response. If the response is oral rather than written it should be noted in the claims person’s file or log.

Upon receiving notice of claim, every insurance claims person should immediately do the following:

  • Acknowledge receipt of such notice to the claimant or insured.
  • If the acknowledgment is not in writing, a notation of acknowledgment must be made in the insurer’s claim file and dated.
  • Provide to the claimant or insured necessary forms, instructions, and reasonable assistance, including but not limited to, specifying the information the claimant must provide for proof of claim;
  • Begin any necessary investigation of the claim.

The investigation must be “real.”  The claims person or investigator must actually contact the insured, the claimant, the witnesses and start collecting the documents needed to complete the claims investigation. Investigation and must be started immediately after receiving notice of claim.

Merely reading a policy wording and notice of claim is not the beginning of an investigation or an investigation at all.

Upon receiving proof of claim, every insurance claims person should immediately accept or deny the claim, in whole or in part. Proof of claim is not the proof of loss required as a condition of the policy. A proof of claim is where the insured provides the insurer sufficient information to allow the insurer to determine part or all of the insured’s claim. The amounts accepted or denied shall be clearly documented in the claim file unless the claim has been denied in its entirety.

Some states allow up to 40 calendar days to respond to a proof of claim. If more time is required to determine whether a claim should be accepted and/or denied in whole or in part, the claims person should provide the claimant or insured written notice of the need for additional time.

The written notice should specify any additional information the insurance claims person requires in order to decide. The written notice should state any continuing reasons for the insurer’s inability to decide. Thereafter, the written notice concerning additional time to complete an investigation, should be provided to the insured at least every thirty calendar days until a determination is made.

If the determination cannot be made until some future event occurs, then the claims person should comply with this continuing notice requirement by advising the claimant and/or insured of the situation and providing an estimate as to when the determination can be made.

Effective diary systems are essential to professional claims handling or the Regulations will be violated with regularity.

Every claims person must conduct and diligently pursue a thorough, fair and objective investigation and should not persist in seeking information not reasonably required for or material to the resolution of a claim dispute.

The claims person’s obligation is not limited to communication with the insured or the claimant.

In addition, the claims person and the insurer have an obligation to communicate with the state, police agencies, or prosecutors if they suspect that an insured or a claimant is attempting fraud.

In California, and most states, such a communication is absolutely immune from suit. Pursuant to section California Civil Code Section 47(b), a privilege is stated that bars a civil action for damages for communications made “[i]n any (1) legislative proceeding, (2) judicial proceeding, (3) in any other official proceeding authorized by law, or (4) in the initiation or course of any other proceeding authorized by law and reviewable pursuant to [statutes governing writs of mandate],” with certain statutory exceptions.

The privilege established by this subdivision often is referred to as an “absolute” privilege, and it bars all tort causes of action except a claim for malicious prosecution. “The absolute privilege in section 47 represents a value judgment that facilitating the “utmost freedom of communication between citizens and public authorities whose responsibility is to investigate and remedy wrongdoing” is more important than the “‘occasional harm that might befall a defamed individual.’” (See Imig v. Ferrar (1977) 70 Cal. App. 3d 48, 55-56 [138 Cal. Rptr. 540].)”

To fulfill Commandment III the claims person must communicate promptly and often with the insured, the claimant and the insured (if a third party claim) and counsel for each. In doing so the claims person establishes a rapport with the insured and/or claimant and will make resolution of the claim easier.

No claims person should ever misrepresent or conceal benefits, coverages, time limits or other provisions of the policy from the insured or the claimant.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

Zalma’s Insurance Fraud Letter – November 1, 2022

ZIFL – Volume 26 Issue 21

See the full video at https://rumble.com/v1qww88-zalmas-insurance-fraud-letter-november-1-2022.html  and at https://youtu.be/XB5dlDzqJ0E

In this the 21st issue of the 26th year of publication of Zalma’s Insurance Fraud Letter you will find articles that discuss the following insurance fraud issues:

When an Insured Lies to his Insurer the Claim May Be Denied

In Cesar Benitez v. Universal Property And Casualty Insurance Company, No. 4D21-3281, Florida Court of Appeals, Fourth District (October 12, 2022) Cesar Benitez appealed the trial court’s entry of final summary judgment in favor of Universal Property and Casualty Insurance Company (“Insurer”) in a first-party property insurance dispute over a water damage claim.

In his application for a policy with the Insurer, Benitez reported no previous losses on his property. However, after Benitez filed a claim for new damage, the Insurer’s inspector found signs of pre-existing damage and repairs. The Insurer denied Benitez’s claim but continued to collect premiums from him for several years. Benitez then sued for breach of contract, and Insurer asserted an affirmative defense based on section 627.409, Florida Statutes (2019).

Read the full article and the full issue at: ZIFL-11-01-2022

Chutzpah: Insurance Criminals Conduct on Release Must Stay in Jail

Conduct After Post Conviction Relief Requires Jail.

In Monnie Villareal v. State Of Mississippi, No. 2021-CP-00440-COA, Court of Appeals of Mississippi (October 11, 2022), the Court of Appeals of Mississippi dealt with a request to avoid jail after conviction for insurance fraud.

FACTS

In June 2017, Monnie Villareal and two codefendants were indicted for insurance fraud (Count I), conspiracy to commit insurance fraud (Count II), false pretenses (Count III), and conspiracy to commit false pretenses (Count IV). The indictment alleged that the defendants, acting on behalf of a tree service business, conspired to present a fake certificate of insurance to a customer in order to obtain the customer’s business and payment in excess of $500. In May 2018, pursuant to a plea bargain, Villareal pled guilty to Count II, and the remaining counts were nolle prosequied. The court sentenced Villareal to five years in the custody of the Mississippi Department of Corrections (MDOC) with credit for time served and the remainder suspended on post-release supervision (PRS).

Read the full article and the full issue at: ZIFL-11-01-2022

Good News From the Coalition Against Insurance Fraud

This issue includes information about convictions like: Roshanak Khadem ran clinics that provided beauty and spa services. The Sherman Oaks, Calif. women recruited patients for Botox injections, facials and laser hair removal. Khadem knew the procedures weren’t insured, yet she told some patients to give her their insurance info so she could falsely bill their health plans nearly $8M for fake or unneeded medical procedures. In return, she gave patients free or discounted cosmetic procedures. She deposited the insurance payouts into bank accounts held in the names of docs affiliated with her clinics. They signed off on the fake claims to slide them past the insurers. Khadem then got the deposited money using her check-signing authority on the bank accounts. She also used pre-signed checks she obtained from the docs. Khadem pled guilty and received 72 months in federal prison.

Read the full article and the full issue at: ZIFL-11-01-2022

How to Add to the Professionalism of Your Claims Staff

The insurance industry has been less than effective in training its personnel. Their employees, whether in claims, underwriting or sales, are hungry for education and training to improve their work in the industry.

Insurers without sufficient personnel to make a classroom training program practical have available options. If the insurer desires to honor its employees who wish to improve their knowledge and skills can do so inexpensively by adding to each employee’s library a complete insurance library by internationally recognized insurance coverage, claims handling, fraud, and insurance law expert and author, Barry Zalma, Esq., CFE.

Read the full article and the full issue at: ZIFL-11-01-2022

How To Defeat or Deter Insurance Fraud

Insurers Must be Proactive Against Insurance Fraud

Insurers Must Stop the Logarithmic Growth of Insurance Fraud

Fraud is taking more money every year from the insurance buying public. The Coalition Against Insurance Fraud recently revised its estimates from $80 billion a year to announce that insurance fraud takes over $308 billion a year from the insurance industry. The US Department of Justice working with various federal police agencies have taken an active role to investigate, prosecute and convict those who defraud U.S. health programs and federally funded insurance like flood insurance and crop insurance. Yet, the arrests and prosecutions that happen are only creating a small dent in the amount of money stolen from private and federally funded insurance.

Read the full article and the full issue at: ZIFL-11-01-2022

Health Insurance Fraud Convictions

New York Doctor Settles Improper Billing and Controlled Substance Act Claims

Physician Admits Upcoding of Services

Ahmad M. Mehdi and his medical practice, Ahmad M. Mehdi, M.D., P.C. (“Mehdi”), agreed to pay a total of $900,000 to resolve civil claims for up-coding billings for some medical services, billing for smoking cessation counseling services that were not adequately documented, and allegedly improper prescribing of opioids, announced United States Attorney Carla B. Freedman. [Plus dozens of other convictions]

Read the full article and the full issue at: ZIFL-11-01-2022

A False Statement at EUO Voids Coverage

Where a plaintiff admits to making false statements with the intent that his insurer relies on those statements, the issue of whether such false statements were made need not be tried to a judge or jury. Similarly, whether a false statement was made knowingly and with the intent to deceive the insurer is usually a question of fact but may be decided as a matter of law where the insured admits that he made knowingly false statements with the intent that the insurer rely upon them because that is, by definition, fraud. [Ram v. Infinity Select Ins., 807 F. Supp. 2d 843 (N.D. Cal. 2011)]

Read the full article and the full issue at: ZIFL-11-01-2022

Other Insurance Fraud Convictions

Is a Law Firm Attempting Fraud When it Files 1,642 Suits in two Weeks

McClenny, Moseley and Associates, a law firm, was threatened by a federal judge in Louisiana to fine the Houston-based law firm $200 for each duplicate or baseless lawsuit he finds among the 1,642 that the firm has filed against insurers for alleged hurricane damages.

US District Court Judge James D. Cain Jr. on Oct. 21 ordered the law firm to submit hard copies of retention or engagement contracts with each of the named plaintiffs in lawsuits that the law firm filed seeking to recover damages allegedly caused by Hurricanes Laura and Delta, which both struck Louisiana in 2020. [Plus many more convictions]

Read the full article and the full issue at: ZIFL-11-01-2022

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

Over the last 54 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. 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, Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921.

 

Posted in Zalma on Insurance | Leave a comment

Claims Commandment II

Thou Shall Always Conduct A Thorough Investigation

See the full video at https://rumble.com/v1qhiq4-claims-commandment-ii.html and at https://youtu.be/tb4_cLhLy24

This is the second in a series of fifteen claims commandments that I believe must be followed by every insurance claims professional.

INVESTIGATION

Investigation is a search for truth. It is an art form where facts are established. It has been defined by the state of California, for example, as follows:

“Investigation” means all activities of an insurer, or its claims agent related to the determination of coverage, liabilities, or nature and extent of loss or damage for which benefits are afforded by an insurance policy, obligations or duties under a bond, and other obligations or duties arising from an insurance policy or bond. [California Code of Regulations, 10CFR2695.2(k)]

Courts will not subject an insurance company to a choice between liability under a bad-faith-failure-to-investigate theory for publication of a denial of coverage without an adequate investigation. Liability can be imposed for a constructive denial imposed after the insurer has conducted a more thorough investigation that confirms an earlier determination of no coverage, on the theory of delay coupled with a wrongful intent.

Courts, state statutes and regulations require that an insurer complete a thorough investigation before it decides the resolution of a claim for property damage, bodily injury, personal injury, or for defense and/or indemnity under a liability insurance policy. Initial conclusions based on a bare reading of a lawsuit or initial investigative interview are not enough. Rather, the insurer is required to perform a thorough investigation before deciding on a claim.

Even though an insurance company is entitled to make a thorough investigation to determine whether there is coverage under its policy of insurance, the company acts at its peril in refusing to defend its insured. If it is subsequently determined that the company erroneously denied coverage, the company will be liable for damages for breach of its agreement under the policy, but if done in good faith it will not be required to pay exemplary damages.

Insurers should conduct their thorough investigation as soon as possible. If a defense is required before the investigation can be completed, the prudent insurer will provide a defense to the insured under a reservation of rights, including a reservation to withdraw the defense and seek reimbursement for moneys expended in providing the defense under reservation.

When an insurer denies or delays payment of policy benefits due to the existence of a genuine dispute with its insured or where coverage is fairly debatable, as to the existence of coverage, the insurance company will usually find to not be liable in bad faith although it may be liable for breach of contract. One court gave the following instruction to a jury:

In determining whether or not an insurance company had a genuine dispute as to whether or not a loss was covered, you may consider among the following: (1) Whether the insurance company was guilty of misrepresenting the nature of the investigation; (2) Whether the insurance company adjusters and investigators lied during their depositions or to the insured; (3) Whether the insurance company dishonestly selected its experts; (4) Whether the insurance company experts were unreasonable; and, (5) Whether the insurance company failed to conduct a thorough investigation.” [McCoy v. Progressive West Insurance, Co., 90 Cal.Rptr.3d 74, 171 Cal.App.4th 785 (Cal.App. Dist.2 02/04/2009)]

An insurer has a duty to conduct an appropriate and careful investigation prior to making a decision on a claim. However, if after conducting a thorough investigation of the facts and circumstances giving rise to a claim, the insurer can reasonably conclude that the claim is fairly debatable or questionable, there can be no bad faith even if it incorrectly, but in good faith, refused to pay the claim.

The same requirement of a thorough investigation applies to first party property claims like fire, lightning, windstorm and hail damage to property that is the subject of the insurance.

How to Conduct a Thorough Investigation

The investigative interview is a structured conversation between a trained and experienced interviewer and a person who has no training in the interview. It is not an interrogation. It is not the stuff of spy films, police investigations, or prisoner of war camps. Interviews happen everywhere. Interviewing is performed by almost everyone. Since interviewing is an art as well as a science, the most effective interview is one performed by someone with knowledge of the art and science of interviewing.

Investigation to gather information is partially an artistic endeavor. The art is supplemented with scientific technique obtained from criminal investigators and professional psychologists but is performed by individuals without thinking about what it is they are doing. The art of the investigation must be honed until it becomes second nature much as a skilled typist does not think where to put his or her fingers while typing.

The police science of interrogation draws heavily upon human nature and the skills of the conversationalist. The art of uncovering the truth by a claims person draws heavily from the police sciences. Because the interrogation is formal, in a confined space and conducted by a person in authority like a police officer or a lawyer examining a witness under oath in court, the techniques used are more formal and controlled than an interview as part of an insurance investigation.

Insurance investigators do not have the power of state investigators. They are compelled to get the information they need by intelligence, wit, skill and experience. They listen carefully. They put people at ease. The skill of the professional causes the person being investigated to want to give information to the investigator. The most important skill of the claims professional is to cause the person being investigated to want to give information to the claims professional that the claims professional needs. The insured who believes honest and thorough responses to the claims professional will then receive the benefits the insurance policy promised.

To conduct a thorough investigation the claims investigator should, at a minimum, the following:

  • Read the loss notice and policy of insurance.
  • If a lawsuit has been filed read the lawsuit in conjunction with the policy wording.
  • Interview the person insured — preferably in person.
  • Obtain a recorded statement from the person insured concerning the facts of the loss.
  • Interview and obtain a recorded statement from every independent witness.
  • Interview and obtain a recorded statement from the claimant if suit has not been filed.
  • If suit has been filed interview the attorney for the claimant about the factual basis for the suit.
  • View the scene of the incident.
  • Obtain all documents that have relevance to the claim, like:
    • The insured’s copy of the policy
    • The police or fire report, if any.
    • Medical records.
    • Financial records.
    • The application for insurance.
    • Contract(s), if any, between the insured and the claimant.
    • All other records that might be relevant to the claim and policy.
    • Consult with necessary experts like:
      • Investigative engineers.
      • Coverage counsel.
      • Defense counsel.
      • Medical professionals.
      • Forensic accountants.
      • All other experts that might be relevant to the claim and policy.

If it appears that there is coverage for the claimed loss the claims person must advise the insured of the insurer’s decision immediately. If it appears that there is no coverage the claims professional must consult with management to review the facts gathered by the thorough investigation before a decision is made.

Conclusion

Failure to conduct a thorough investigation is a breach of the promises made by the policy of insurance to provide defense and/or indemnity to the person insured. Failure can also result in the insurer being sued for breach of contract and the tort of bad faith.

Insurers must, to comply with current law conduct:

  • A detailed investigation of the facts of the loss and policy acquisition.
  • A determination of the expectations of the insured and the insurer at the time the policy was acquired.
  • A determination of the purposes for which the policy was acquired.
  • An examination of all communications between the insurer and the insured or their representatives.
  • If the investigation is not conducted, the insurer will invariably face suit for the tort of bad faith.

The thorough investigation requirement first enunciated by the California Supreme Court in Egan v. Mutual of Omaha Insurance Co., 24 Cal. 3d 809, 620 P.2d 141, 169 Cal. Rptr. 691 (Cal. 08/14/1979) is essential when attempting to interpret a disputed policy of insurance or a disputed factual situation.

In Egan, the Supreme Court concluded that “an insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial.”

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

No alt text provided for this image

Now available Barry Zalma’s newest book, The Tort of Bad Faith, and How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” the New Books are now available as a Kindle book here, paperback here and as a hardcover here available at amazon.com.

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

Posted in Zalma on Insurance | Leave a comment

ERISA Policy Rescinded

Material Misrepresentation About Prior Health Care Supports Rescission

See the full video at https://rumble.com/v1qcjuy-erisa-policy-rescinded.html and at https://youtu.be/8ryzlIFL6Xg

Happy Halloween & Feliz Dia De Los Murertos

An ERISA Policy May be Rescinded

In Provident Life & Accident Insurance Company v. Bradley D. Mckinney, No. 3:19-CV-1325 (SVN), United States District Court, D. Connecticut (September 9, 2022) the USDC was called upon to determine if an insurer can rescind an ERISA policy.

FACTUAL BACKGROUND

Bradley McKinney applied for and obtained a disability insurance policy with Provident Life Accident & Insurance Company (“Provident Life”). McKinney subsequently filed a claim for disability benefits under the policy, but Provident Life rejected his claim on the ground that McKinney made material misrepresentations in his application for the policy. Provident Life sued seeking rescission of the insurance policy, and McKinney counterclaimed seeking an order directing Provident Life to pay him all benefits due under the policy.

McKinney’s employer, Anderson Tax LLC, maintained a Supplemental Individual Disability Insurance Plan. McKinney applied for supplemental insurance through the plan. In completing the application, McKinney answered various questions about his medical history and agreed that his answers were “true and complete and correctly recorded to the best of [his] knowledge and belief.” In September of that year, Provident Life issued him an insurance policy providing all three available disability coverages. The policy provided that “[o]missions and misstatements in the application could cause an otherwise valid claim to be denied or [the policy] to be rescinded.”

McKinney filed a claim for basic disability benefits related to a neurocognitive disorder. His claim form stated that he first began experiencing symptoms of “confusion, severe fatigue, loss of memory, challenges with thinking, analyzing, [and] lack of concentration.” Provident Life’s claims specialist investigated McKinney’s claim, obtained certain medical records, and consulted with the underwriters. Thereafter, Provident Life denied McKinney’s claim and notified him that it was rescinding its policy on the ground that McKinney had materially misrepresented his medical history when applying for the insurance.

In answering questions 6 and 8 of the application McKinney represented that he had not received diagnosis or treatment from a physician for memory loss, confusion, or speech disruption in the five years preceding his application. Second, in answering question 3(a), he represented that he had not missed one or more days of work or been admitted to a medical facility due to sickness or injury in the 180 days preceding his application. Upon reviewing McKinney’s medical records, Provident Life concluded that his answers to those questions were untruthful and that its denial of his claim and rescission of his policy were proper.

ERISA

The parties do not dispute that a plan fiduciary may obtain “equitable rescission of an ERISA-governed insurance policy that is procured through the material misstatements or omissions of the insured.” [Shipley v. Ark. Blue Cross & Blue Shield, 333 F.3d 898, 902 (8th Cir. 2003).] An ERISA plan fiduciary’s right to obtain equitable rescission is well grounded in federal common law.

Rescission Due to Material Misrepresentation

Under the federal common law that has developed pursuant to ERISA, an insurer can rescind a policy where the insured knowingly made a material misrepresentation in an application for an ERISA-governed insurance policy.

DISCUSSION

In initially rejecting his claim, Provident Life explained that McKinney untruthfully answered questions 6 and 8, which concerned prior treatment for memory loss, confusion, or speech disruption in the relevant time frame. In denying McKinney’s appeal of the original denial, Provident Life explained that McKinney also untruthfully answered question 3(a), which concerned time off work due to admission to sickness or injury in the relevant time frame.

The Court concluded that there was no genuine dispute of fact that McKinney made material misrepresentations in responding to questions 6 and 8 of his application for supplemental insurance coverage. There was no dispute that McKinney’s answers to those questions were untrue. He was certainly treated for confusion and speech disruption within five years of his application for supplemental insurance coverage, rendering his contrary responses to questions 6 and 8 untrue.

The Court concluded that McKinney’s claims of ignorance of the fact that he had been treated for confusion and speech disruption during his 2016 hospitalization was not innocent. A misrepresentation is innocent when the applicant does not know that the information he is providing is false, and when such ignorance was reasonable.

The court concluded that McKinney’s ignorance about the facts of his 2016 hospitalization was not reasonable. Multiple people including McKinney’s partner-reported that McKinney experienced confusion and speech disruption during that hospitalization. Indeed, when questioned in the course of his claim for benefits, he acknowledged that he was first diagnosed with these problems in February of 2016. The idea that he did not know about them when he applied for the insurance policy in 2017 therefore strains credulity. In addition, McKinney had medical records from which he could have determined that his answers to questions 6 and 8 were false, and he had an obligation to use reasonable diligence to ensure that he answered those questions correctly.

The court also concluded that there is no genuine dispute that McKinney’s untrue answers to questions 6 and 8 were material to Provident Life’s issuance of the policy. With respect to a life or health insurance policy, a misrepresentation regarding the applicant’s prior medical history is generally material to the risk as a matter of law, and, when knowingly made, will defeat recovery by the insured.

Importantly, in signing the application for insurance coverage, McKinney agreed that he understood his answers to the questions would “become part of [his] application and any policies issued on it.” The application form, including questions 6 and 8, were clearly intended to limit coverage, so the application’s particular inquiry into the applicant’s prior treatment for memory loss, confusion, or speech disruption renders those questions presumptively material.

Given the strong weight of authority establishing the materiality of an applicant’s prior medical history subject to specific inquiry, as well as the fact that McKinney’s answers were incorporated into the policy issued, the Court concludes that his knowing misrepresentations to questions 6 and 8 were material. Thus, Provident Life is entitled to rescission of the insurance policy as a matter of law.

Finally, ample authority establishes the materiality of McKinney’s misrepresentation as to question 3(a) as with questions 6 and 8, McKinney’s response to question 3(a) became part of the policy and is therefore presumptively material. In addition, McKinney’s misrepresentation is logically material to a reasonable insurance company’s decision whether to insure that applicant or determination of the premium. In addition, Provident Life’s underwriter unambiguously represented that had he known that McKinney took one PTO day to attend a lumbar puncture appointment regarding his neurosyphilis condition, he would not have issued even the basic disability benefits policy to McKinney.

The Court is entitled to rely on an insurer’s underwriter’s representation regarding the materiality of a misrepresentation.

To the extent the underwriting guidelines and the underwriter’s representation appear to differ as to the result of that investigation, the Court need not resolve.

Rescission of the current policy is justified as a matter of law.

ZALMA OPINION

Since Medieval times when courts of equity were ruled upon by priests who were charged with providing equity – fairness – with regard to disputes rather than money damages. Rescission of a contract entered into as a result of material misrepresentations, concealment of material facts or fraud, requires the court of equity to order the the premium returned to the insured and the policy returned to the insurer. It would then declare that the policy never existed. The USDC, acting as a court of equity, did what was only available to it: it declared the policy rescinded because of material and intentional misrepresentations by the insured.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

 

 

Posted in Zalma on Insurance | Leave a comment

Claims Commandments

Claims Commandment I – Thou Shall Confirm Coverage

See the full video at https://rumble.com/v1qcsuk-claims-commandments.html  and at https://youtu.be/I96bU0kKmd4

How to Confirm Coverage

When I was a young adjuster, I worked for the Fireman’s Fund Insurance Company. Occasionally confused insureds and brokers would report to the Fireman’s Fund a claim meant for Fireman’s Insurance of Newark. The claim would often be adjusted and paid before anyone realized an error had been made.

Notice provisions in insurance policies serve the important function of allowing the insurer the opportunity to make a timely and thorough investigation of the insured’s claim. American States Insurance Co. v. National Cycle, 260 Ill. App. 3d 299, 310-11, 631 N.E.2d 1292, 197 Ill. Dec. 833 (1994); Twin City Fire Insurance Co., 266 Ill. App. 3d at 7.

When a loss or claim is reported to an insurance company the first task required of the insurer and its claim personnel is to confirm the existence of a policy. The task today is much simpler than it was when I was an adjuster where we had to pull out the actual underwriting file and review the daily report. Now, coverage can be confirmed by computer.

If the insurer’s computer system shows that a policy was in effect at the time the insured reported that a loss occurred, the first step of confirming coverage was completed. Next, if available digitally, the entire policy must be accessed including the declarations page and all policy wordings, all endorsements and modifications to the standard policy language.

The claims person needs to have available a specimen of the policy as it would have been delivered to the insured so that the claims person can be read, review and understand the promises made by the policy to enable the claims person to explain the available coverages to the person(s) insured.

If the entire policy is not available electronically or cannot be recreated by the underwriting department the agent or broker should be asked to provide a complete copy of the policy to the adjuster. If the agent or broker does not have it a copy should be obtained from the insured. Modern insurers now deliver policies to their insured’s electronically in Adobe .pdf format which can be attached to an email from the insured at the request of the claims person.

Once the policy is obtained and available for review the claims person must read and understand the policy coverages and compare those to the wording of the policy to confirm that one of the policy coverages promises to indemnify the insured against the risk of loss of the type reported.

For example:

  1. If the policy is a property policy that insures the insured against the risk of loss of a dwelling by fire, lightning, windstorm and hail, and nothing more and the insured reports a claim for damage caused by earthquake the existence of a policy is confirmed but the existence of coverage is not.
  2. If the policy is a liability policy like a Commercial General Liability (CGL) policy and the insured reports that the mailman was bitten by the insured’s pit bull terrier during the policy period, coverage is confirmed. However, if the policy contains an exclusion for losses caused by dog bite or pit bulls, coverage is confirmed with a exclusion that might be applicable.
  3. If the policy is a CGL and the insured reports, he was sued for slander by a business competitor during the policy period coverage is confirmed and there is available defense under the “Personal Injury” coverage part.
  4. If a policy is a National Flood Insurance policy in effect at the time that a water main breaks and floods the insured’s house, coverage is confirmed that the policy exists, and a determination must be made to determine if the loss falls within the terms and conditions of the policy.
  5. If a policy is a CGL and the insured reports he was sued for intentionally punching a business competitor in the nose, coverage is confirmed that the policy was in effect, but questions must be answered to determine if there is evidence that indicates there was no intentional act or that the insured was acting in self-defense, or some other nonintentional act.

What these examples show is that the existence of a policy can be confirmed, and it can be easily confirmed that it was in existence at the time of the loss. What cannot be established from the loss notice and policy wording is whether the coverage applies to the loss that was reported.

Communications with the Insured

Once coverage is confirmed the claims person must read the policy and the initial written contact with the insured should advise the insured all benefits, coverage, time limits, or other provisions of any insurance policy issued by that insurer that may apply to the claim presented by an insured.

The letter should include, as a bare minimum, information like the limits of liability of the policy, any deductibles or self-insured retentions, advice concerning any specific exclusions or conditions that may apply to the facts established by the notice of loss, a written notice that a proof of loss is required within 60-days of the letter with an attached proof of loss form, a requirement for the production of necessary documents, a reservation of rights (if called for because of a potential coverage problem like an exclusion that might apply), and any other information the insured needs to prove his, hers, or its claim.

The claims person should also be prepared to supplement the initial letter whenever he or she learns of different facts or additional coverages available to the policyholder or the insured.

Failure to properly, and in writing, advise the insured of the policy provisions, the requirement for documents, the problems with coverage based on the initial report of loss, can place a claims person inadvertently violating the state’s fair claims settlement practices statutes and regulations and expose the insurer to litigation for bad faith claims handling.

More Required

Confirmation of coverage requires more than simply checking a computer. It requires an understanding of the policy wording, the facts of the loss and the law of the jurisdiction to determine if coverage for a particular loss is available to the insured. Simply reading the loss notice, allegations in a lawsuit, and the policy is never enough.

The claim person’s first and foremost duty of is to confirm the existence of coverage whereby the insurer agreed to insure the person making a claim. It is a beginning of claims handling and cannot, on its own, fulfill the obligation to confirm coverage before the adjustment begins because the applicability of coverage can be affected by the claims investigation.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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

Posted in Zalma on Insurance | Leave a comment

When Insured Lies

Insurer May Deny a Claim When Insured Lies on Application

See the full video at https://rumble.com/v1q64ve-when-insured-lies.html and at https://youtu.be/-rg-pIT08-A

Rescission Requires Return of Premium Denial of Claim Does Not

Cesar Benitez appealed the trial court’s entry of final summary judgment in favor of Universal Property and Casualty Insurance Company (“Insurer”) in a first-party property insurance dispute over a water damage claim.

In Cesar Benitez v. Universal Property And Casualty Insurance Company, No. 4D21-3281, Florida Court of Appeals, Fourth District (October 12, 2022) the Court of Appeals was asked to interpret a statute and the policy wording.

FACTS

In his application for a policy with Insurer Benitez reported no previous losses on his property. However, after Benitez filed a claim for new damage, Insurer’s inspector found signs of pre-existing damage and repairs. Insurer denied Benitez’s claim but continued to collect premiums from him for several years. Benitez then sued for breach of contract, and Insurer asserted an affirmative defense based on section 627.409, Florida Statutes (2019). The statute provides:

(1) Any statement or description made by or on behalf of an insured or annuitant in an application for an insurance policy or annuity contract, or in negotiations for a policy or contract, is a representation and not a warranty. Except as provided in subsection (3), a misrepresentation, omission, concealment of fact, or incorrect statement may prevent recovery under the contract or policy only if any of the following apply:

(a) The misrepresentation, omission, concealment, or statement is fraudulent or is material to the acceptance of the risk or to the hazard assumed by the insurer. § 627.409(1)(a), Fla. Stat. (2019) (emphasis added).

Additionally, Insurer’s policy allowed denial of coverage if Benitez “[i]ntentionally concealed or misrepresented any material fact or circumstance; (2) [e]ngaged in fraudulent conduct; or (3) [m]ade material false statements; relating to this insurance.”

The Insurer also moved for dismissal based on fraud on the court or, in the alternative, for summary judgment pursuant to section 627.409 based on material misrepresentations.

At a hearing on that motion, Benitez did not dispute his failure to disclose the prior claim in both his policy application and discovery responses to interrogatories and sworn statements in his deposition. Benitez instead argued the Insurer could not claim rescission as an affirmative defense because the Insurer had continued to collect premiums from him for approximately two years after learning of the prior undisclosed claim. The Insurer contended it sought only to deny coverage under section 627.409 and not to rescind the policy.

The trial court held that no genuine issue of material fact existed as to whether Benitez’s failure to disclose the prior claim on his policy application or in discovery amounted to material misrepresentations such that the claim could be denied under the policy provisions and section 627.409.

ANALYSIS

While section 627.409 provides that an insurer may seek rescission of a policy, the plain language of the statute alternatively allows for an insurance provider to deny coverage of an individual claim. When the statute is clear and unambiguous, courts will not look behind the statute’s plain language for legislative intent or resort to rules of statutory construction to ascertain intent.

The Insurer’s affirmative defense was based on the statute, and the Insurer made clear at the summary judgment hearing that it was not seeking rescission of the policy pursuant to the statute but was instead seeking the alternative remedy of denial of the claim.

The trial court properly granted summary judgment on Insurer’s denial of coverage of Benitez’s claim based on material misrepresentations.

An appellate court may affirm a trial court’s decision so long as there is any basis which would support the judgment in the record. As a result, the appellate court did not need to determine whether a basis existed for denying the claim founded upon fraud on the court.

ZALMA OPINION

Rescission is an equitable remedy whereby both parties to the contract of insurance are put back into the position they were in before the policy came into effect and treats the insurance as if it never existed. An insurer who rescinds must return the premium. However, by the terms of the policy, and Florida statutes, if the insured lies about material facts the insurer may simply deny the claim and leave the policy in force. As my mother, rest her soul, told me often: “Liars never prosper.” This case proved her right.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

No alt text provided for this image

Now available Barry Zalma’s newest book, The Tort of Bad Faith, and How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” the New Books are now available as a Kindle book here, paperback here and as a hardcover here available at amazon.com.

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

 

 

Posted in Zalma on Insurance | Leave a comment