Criminal Caused Suit on Policy to Drag on for More than Six Years

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Court Finally Stopped an Unconscionable Level of Overlitigation

United States District Judge Gary R. Brown was faced with a legal dispute that, perhaps because the defendant was a criminal, went on for years without a final disposition. In Principal Life Insurance Company v. Jason P. Brand, No. CV 15-CV-3804, United States District Court, E.D. New York (September 29, 2021) the case was reduced to seven years on disputes that appeared to be relatively straightforward:

  1. defendant Brand obtained a disability policy in early 2012 from plaintiff Principal Life, after being less than forthcoming about his health history.
  2. In June 2014 – prior to the submission of Defendant’s disability claim on November 14, 2014 – the New York State Attorney General’s office raided Defendant’s offices, seizing his computers and physical files, leading to indictment on October 16, 2014 of Defendant and his businesses, DASO Development Corp. and Narco Freedom, Inc., for insurance fraud in the first degree and grand larceny in the second degree, charges to which defendant would plead guilty.
  3. Defendant filed a disability claim based upon anxiety;
  4. Principal Life, for its part, acted quickly and rescinded the policy and
  5. Filed a declaratory relief action.

ANALYSIS

This litigation has been pending since. The case, in which defendant was originally unrepresented, yielded an unconscionable level of overlitigation which added unneeded complexity. After more than six years of litigation, hundreds of court filings, and approximately 75 orders issued by at least five different judicial officers the case was placed before Magistrate Judge Wicks.

Amidst this chaos, Judge Wicks issued a Report and Recommendation to USDC Judge Brown regarding summary judgment motions by both parties. His findings and conclusions were straightforward and simple:

  • the plain language of the policy prevented plaintiff from rescinding the policy in absence of a judicial determination of fraud.
  • The claimed disability, indisputably emanating from defendant’s criminal conduct, were expressly excluded from coverage.

Judge Brown concluded that\ Judge Wicks Report, introducing clarity to the morass created by the litigants, should well end the case.

But the pandemonium continued with both parties disputing the recommendations. Both parties objected, on several far-flung grounds, to Judge Wicks’ determination.

As a result, Judge Brown was required to review the R&R, recognizing that he may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.

Judge Brown, thoroughly familiar with this matter, conducted a careful review of Judge Wicks’ thoughtful and thorough R&R. Judge Wicks’ decision was found to be free from clear error. Nor do any of the issues raised via objection require alteration of the opinion.

Plaintiff’s Objections

For reasons that remain mysterious, though Judge Wicks’ decision effectively relieves plaintiff of the obligation to pay the disability claim, plaintiff insists that it remains entitled to a determination that rescission was and/or is appropriate.

Plaintiff continues to argue that it had the right to rescind the policy upon its own authority without a judicial declaration of fraud. Plaintiff lacked authority to unilaterally rescind the policy in 2015, since more than two years had elapsed, and the policy specifically required a judicial declaration of fraud before rescission.

The argument for rescission was rendered moot by Judge Wicks’s determination that defendant is not entitled to coverage under the policy. In other words, because Principal Life has been relieved of its obligation to pay the disputed claim, there remains no “substantial controversy” between the parties that would warrant a declaratory judgment.

In fact, Judge Wicks’ determination effectively secures the substance of the relief sought by plaintiff in this action. Further determination by this Court would constitute an advisory opinion.

Defendant’s Objections

Defendant’s principal objection emanates from a purported failure by plaintiff to raise the policy’s Criminal Conduct Exclusion prior to summary judgment.

Counsel’s far-flung efforts to establish that defendant was not only involved in criminal activity, or odd distinctions between criminal enterprise and criminal occupation are unavailing given the breadth of the exclusion in question. The policy clearly excludes injuries caused “in whole or in part . . ., contributed to by or result[ing] from . . . commission. . . or attempt to commit a felony”).

Judge Brown concluded, in a Solomon-like fashion:

 “Enough ink has been spilled, effort expended, and resources consumed in this case. For the reasons set forth above, the Court hereby adopts the R&R in its entirety. The Clerk shall enter judgment in favor of plaintiff consistent with this Order and close the case.”

ZALMA OPINION

People who commit insurance fraud are egregiously litigious. To drag out the case for more than six years before more than five judges is difficult to understand. To argue against a win – as did the insurer – is simply silly and the insurer should refuse to pay the fees of its counsel who filed the objections. The case was simple – the insured was a criminal whose claim of disability resulted from his criminal conduct and was, therefore, clearly and unambiguously excluded. I was surprised that Judge Brown did not assess sanctions on the parties for wasting the time of the court with an excrutiatingly overlitigation.


© 2021 – 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. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 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.

Go to my articles at https://zalma.substack.com,  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 https://www.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/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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