Insurance Claims And Issues

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 **Insurance Bad Faith Expert -- Author's Note:  If you have reached this blog through a list that carries advertising, your computer may or may not be put at risk either through the list or through the advertising.  I do not accept or authorize any commercial advertising of any kind on any list or post.  Placing commercial advertisements with or near any of my web log posts is prohibited.  Further, I do not recommend any products or services advertised with or near any of my posts or any list of my posts.** 

FOURTEEN FOR THE EXPERTS: NEW INSURANCE CASES THAT MAKE EXPERT WITNESS LAW ....

 

.... TWO MORE.

    In a change-of-pace, Insurance Claims and Bad Faith Law Blog and Insurance Claims and Issues Weblog will carry consecutive posts addressing a single common theme:  Court rulings on Expert Witness Testimony and Reports in recent Insurance Cases.  For the previously developed rules of law and judicial decisions on these issues, see generally as to Liability Insurance Cases, volume 1 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 8:17 (West Publishing 3d ed. 2011; 2012 Supplement in process), and see generally as to all types of First-Party Insurance Cases, volume 2 id. § 12:18.

 

 Expert Witness Testimony:  Reliability is Required.

    Many criteria are generally accepted as measurements of the reliability of scientific testimony.  Even when the criteria are different from Court to Court, including between Federal Courts and State Courts, there are generally accepted measurements of the reliability of scientific testimony when it is offered at Trial.

   In "the area of non-scientific, experience-based testimony, while these same criteria may be used to evaluate its reliability, sometimes other factors may prove more useful."  Clena Investments, Inc. v. XL Specialty Insurance Co., 2012 WL 266422 *8 (S.D. Fla. January 30, 2012)(Rosenbaum, USMJ), Download Clena Investments, Inc. v. XL Specialty Insurance Co. (S.D. Fla. Case No. 10.62028, Order of USMJ Filed Jan. 30, 2012) PUBLIC ACCESS.  What those factors may be in a given case, will vary from case to case in which "non-scientific, experience-based testimony" is offered from  Expert Witnesses.

   For example, in the Clena case itself, one Calitu testified that his analysis of Hurricane Wilma Damage sustained by Plaintiff Clena Investments, Inc. depended in part on a "six-factor chart".  The Court held that the chart was unreliable evidence and struck Mr. Calitu's Opinion in his Report to the extent that he relied on that chart in reaching his Opinion.  Id. at *10.

   However, Mr. Calitu also based his Opinion on "his training, experience, and inspection of the Property to opine that it is more likely that Hurricane Wilma imposed the Property damage than that any prior hurricane did."  To that extent, based on his own "training, experience, and inspection of the Property," Mr. Calitu's Opinion that the Plaintiff sustained damage from Hurricane Wilma was held admissible in that case.  Id. at *10.

 

When Reliability is Not Enough:  Disclosure Deadlines Must Be Met or There May Not Be Any Expert Testimony.

   In another case another United States Magistrate Judge in the Southern District of Florida faced a request to allow an Expert to testify even though the Expert was not timely disclosed, his Report was untimely provided, and he could not in any stretch of the Court's imagination be deemed a "rebuttal" Expert in this case.  Kendall Lakes Towers Condominium Ass'n v. Pacific Insurance Co., 2011 WL 63272198 * 1 (S.D. Fla. December 20, 2011)(Goodman, USMJ:  "This is an insurance coverage dispute concerning the issue of whether there is coverage for property damage allegedly arising from Hurricane Wilma on or about October 24, 2005."), Download Kendall Lakes Towers Condominium Assn v. Pacific Ins. Co. (S.D. Fla. Case No. 10.24310, Order of USMJ Filed Dec. 20, 2011) PUBLIC ACCESS.  The Defendant understandably was not amused and requested that the Expert be precluded from testifying.

  The Court set the scene by laying down the law:

Evaluating a preclusion request involves an analysis of several factors, including the history of the litigation, the proponent's need for the challenged evidence, the justification (if any) for the late disclosure and the opponent's ability to overcome its adverse effects (i.e., the degree of prejudice and whether it can be cured or ameliorated.

Id. at *3.

   These things factor into a standard of discretion, said the Magistrate Judge.  The Expert was allowed, with restrictions.  These are the restrictions, reasonably tied, it certainly appears, to being allowed to present the Expert's Opinion Testimony in this case under these circumstances:

1. If Plaintiff intends to use the Expert in question at Trial, then within 7 days of the Court's Order the Plaintiff was required to submit to the Defendant Insurance Company "an amended or supplemental expert report, in compliance with all the disclosure requirements."
2. The Defendant could take the Expert's Deposition within 1 month after this decision.
3. If the Defendant took this Expert's Deposition, the Plaintiff would pay the Expert's fee for this Deposition, and the Court Reporter fees, and the attorney's fees and costs incurred by the Defendant "in preparing and taking" this Deposition.
4. If the Defendant chose to obtain a Rebuttal Expert in response to this particular Plaintiff's Expert, it was allowed 1 month and 10 days, or a total of 41 days, after this decision to do so.
5. Finally, in part here pertinent, if the Plaintiff wished to depose the Defendant's Rebuttal Expert in question, then the Plaintiff could do so within 1 month and 20 days, or a total of 52 days, after this decision provided that  the Plaintiff would bear "the typical costs" and pay the Defendant's Rebuttal Expert's fee both for Deposition time and for time spent in preparing for this Deposition.

Id. at *5.

   Clearly, Expert Witness Testimony must be reliable -- and timely disclosed in accordance with applicable Court Orders and Rules.

 

Part of  a Series.  To be continued ....

 

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Health Insurance Rate Increases: ACA's Small Business Health Options Program.

   The Affordable Care Act requires individuals to purchase Health Coverage.

   Lost in the confusing melee over that so-called "mandate," the ACA also provides for many other things.  One of them is the Small Business Health Options Program, or "SHOP".

   Many of SHOP's features have been informatively analyzed elsewhere.  See, e.g., Chris Fleming's post on February 9, 2012 on Health Affairs Blog, "Small Business Health Insurance Exchanges:  Potential and Pitfalls," and links in it to other sites.

   The purpose of this post is to focus attention on one 'mandate' in the ACA's SHOP provisions that deserves to be understood.  SHOPs are statutorily required to provide Employees of small businesses with a range of lower-cost health plans than might otherwise be available to them.  If the SHOPs do not succeed in reaching that goal, among others, then the SHOPs will go out of business.

"Reduced Healthcare Premiums, or Bust!"

The author is Co-Chair of the Health, Life and Disability Insurance Subcommittee of the American Bar Association's Insurance Coverage Law Committee.

Please Read The Disclaimer.

Health Insurance: Regulations in Final Form ... Now. Not Later. Now.

   The Secretary of Health and Human Services has recently issued new Rules and Regulations, one after another.  Unlike at least one other, more controversial Regulation, these are now in final form and they did not draw political fire or the attention of a religious organization.

   One Regulation with immediate effect is to require Health Insurance Plans and Companies to issue Summaries of Benefits and Coverage.  These forms are standardized.  They are intended to be written and distributed in an "easy-to-read, easy-to-understand" format.  The effective date is September, 2012 but the Regulation is in final form now.  See Noam N. Levey, "New Rules For Health Plans Require Clear Summaries of Benefits" (Los Angeles Times Online, Friday, February 10, 2012).

   Another new Regulation would require 80 percent of collected Premium money to be used to fund actual Healthcare.  The remaining 20 percent can be used by Health Insurance Companies to pay so-called overhead expenses, such as CEO salaries.  If a consumer pays Premiums greater than the 80-20 "medical loss ratio" mandated by the Regulation, she, he or it is entitled to a refund of the excess amount the next year.  Parenthetically, California has adopted a similar Regulation but the California Regulation calls for the calculation of 80% - 20% to be made when a Health Insurance Company files for its Rates in a given year, while the Federal Regulation apparently is based on a calculation which is made instead after consumers have paid the annual Premium.  See "Regulation:  Health Insurers Must Put More Premiums Into Medical Care" (Insurance Journal Online, Thursday, February 9, 2012).

   More Regulations?  Yes.  Many will benefit your clients.  Take a look at them.  More to come, as they say. 

The author is Co-Chair of the Health, Life and Disability Insurance Subcommittee of the American Bar Association's Insurance Coverage Litigation Committee.

Please Read The Disclaimer.

 

UMBRELLA CARRIER SUES INSURED'S DEFENSE COUNSEL: DISMISSAL REVERSED, COMPLAINT REINSTATED.

   On an appeal from a Trial Court Order granting a Motion to Dismiss, a lopsided majority of the Mississippi Court of Appeals, en banc, reversed the dismissal and reinstated the Complaint in  Great American E & S Insurance Co. v. Quintairos, Prieto, Wood & Boyer, P.A., 2012 WL 266858 (Ct. App. Miss. January 31, 2012, Download Great American E & S Insurance Co. v. Quintairos, Prieto, Wood & Boyer, P.A. (Ct. App. Miss. January 31, 2012)(en banc) PUBLIC ACCESS.  (The Defendant in this case is a Florida-based Law Firm.)

   The Court of Appeals' original opinion was modified and withdrawn en banc in a decision stating that rehearing was "denied".  In that case, the Plaintiff was an Umbrella Carrier and the Defendant was a law firm retained by the Primary Carrier to defend their mutual Policyholder.    After settling the subject underlying lawsuit for an undisclosed sum, see id. at *2 ¶ 15 (there were three other cases alleged by the Plaintiff in which the Plaintiff was allegedly damaged by the same law firm's conduct of the defense, in addition to the underlying case at issue in this appeal, id. at *3 ¶ 16), the Umbrella Carrier-Plaintiff sued the Defendant Defense Counsel on Counts of alleged Negligent Misrepresentation, Legal Malpractice, various Negligence Counts, and Equitable Subrogation.

   Parenthetically, according to the en banc majority opinion, the Umbrella Carrier settled the subject underlying case after learning, among other things, "that none of the Quintairos partners or trial attorneys had been admitted to practice law in Mississippi," and "that Quintairos had not retained local counsel".  Id. at *2 ¶ 14.

   The en banc Court reversed the Trial Court's Order of dismissal on each of these Counts.

   The Negligent Misrepresentation claim was supported, in the majority's view, by allegations that the Defense Counsel misinformed the Umbrella Carrier in evaluating the likely damages in the event of a Judgment against the Insured:

Thus, Great American claims: Quintarios [sic] had falsely represented that the settlement value of the cases was worth substantially less than the amount that would implicate Great American's coverage; Great American relied on the false representations; Great American had no reason to take action to protect itself; and Great American was damaged as a result of the misrepresentations.

Id. at *4 ¶ 25.  "Accordingly, this Court finds that there is a set of facts that would entitle Great America [the Umbrella Carrier-Plaintiff in this case] to relief."  Id. at *4  ¶ 26.

   Great American's separately stated claim for Legal Malpractice also stated a claim or cause of action, in the eyes of the Court on rehearing en banc.  This ruling seems to have been based on the same common nucleus of alleged operative facts, so to speak:

   ¶ 34. We conclude that if Great American was provided defense counsel's evaluation of the “settlement value” of the plaintiff's lawsuit, as is alleged in Great American's amended complaint, such information would appear to be considered the rendition of professional legal services by a lawyer.

* * *

Therefore, we find that the allegation in the amended complaint that defense counsel, including Quintaros [sic] provided attorney-client privileged communications to Great American may provide a set of facts upon which Great American may be able to prove that an attorney-client relationship existed.

Id. at *6 ¶ 34.  [Emphasis by the Court of Appeals of Mississippi.]

   Author's Note at this point in the post:  There are few if any cases in which Defense Counsel will not provide to the Insured's Excess or Umbrella Carrier, her, his, or their evaluations of both the liability and damages exposure faced by the Insured Defendant.  As a direct result, the implications of this particular ruling in this case are huge.

   The en banc Court of Appeals also held that even though the amended complaint at bar contained claims that were not dismissed by the Trial Court's Order, which were alleged "for negligence, gross negligence, and negligent supervision," still the Trial Court's Judgment was reversed and the Defendant law firm's motion to dismiss should have been denied as to these claims, too.  Id. at *9 - *10 ¶¶  43-48.

   Finally, the Plaintiff Umbrella Carrier also stated a legally cognizable claim against the Defendant Law Firm for Equitable Subrogation, the Court held.  Since the Plaintiff settled on behalf of its Insured, the Court held that the Plaintiff is equitably entitled in this case of first impression under Mississippi law, to step into the shoes of its Insured and "should be allowed to go forward with its claim in the insured's place."  Id. at *12 ¶ 55.

   The holding in this en banc decision is on the cutting edge of an emerging issue in Insurance jurisprudence:  Whether an Excess or Umbrella Insurer can legally assert claims "against the law firm that was hired to defend the insured."  Id. at *1 ¶ 2.  In answering this question in the affirmative, the Court of Appeals placed Mississippi in the ranks of those jurisdictions in which Defense Counsel can be sued for 'malpractice' by Excess or Umbrella Insurers of the Defendants (Insureds) which the lawyers have been retained to defend.  See generally Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith §§ 3:70 (Requirements for Fulfillment or Enforcement of Good Faith Duty:  Conduct of Defense -- Informing the Insured:  Counsel") and 3:71 ("--Negligence of Trial Counsel") (West Publishing Co. Third Edition 2011).

Please Read The Disclaimer.

Ask; They Won't Tell!

   In the United States, the "average" Insurance Premium per automobile for Liability, Comprehensive, and Collision Coverages is about $901.00.  Tara Siegel Bernard, "Your Money / Car Policy For Less, But Only if You Call" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, February 4, 2012), citing National Association of Insurance Commissioners' statistics for the year 2009, the most recent available.

   The "average" Insurance Premium depends not only on where you and your clients live in this country, but also on which Insurance Company is offering the Coverages.

   Your Insurance Company probably will not tell you if you or your clients are paying too much in Premium.  They are generally not required to do that.  The Insurance Company will understandably be only to happy to collect the Premium, without notifying you whether you are overpaying it.  Shopping around is up to you.  Ask questions.

   And put your questions to your Insurance Company directly.  If for any reason you must go through your Agent, ask your Agent to ask the Insurance Company.  Go to the end of the horse that speaks, in other words, go to the horse's mouth.

   The questions to ask are simple and direct.  For starters, ask the Insurance Company:  "Is there a plan or policy offering the same Coverages at a lower Premium than what I am paying now?"  Ask other Insurance Companies the same questions.  Shop around.  Do your research.

   It may save you in the end.  See also Tara Siegel Bernard, New York Times, supra; and this free downloadable copyrighted pdf guide published by the National Association of Insurance Commissioners: Download A Consumer's Guide to Auto Insurance (NAIC 2011).

Please Read The Disclaimer.

Part 3 of 4: Residential Mortgage-Backed Securities Working Group ...

... Is the Fix In?

This is the Third in a series of Four posts.  The series began on Insurance Claims and Issues Web Log on Monday, January 30, 2012 and continued on Insurance Issues and Bad Faith Law Blog on Tuesday, January 31, 2012.

   After HUD Secretary SHAUN DONOVAN had his meeting with Democratic Attorneys General in Chicago to try to convince them to settle with the Banks for their unknown liabilities from the Great Financial Fiasco (see post 1), the Illinois Attorney General joined the Residential Mortgage-Backed Securities Working Group.  However, she is not listed as one of the five (5) Co-Chairs appointed to run the Group, even in her own press release.  None of the press releases released to date clarify her participation.  See, e.g., Illinois Attorney General's Press Release, January 27, 2012, "Attorney General Madigan Joins National Mortgage-Backed Securities Working Group"; Jim Puzzanghera, "New Initiative Will Coordinate Probes of Mortgage Meltdown" (Los Angeles Times Online, January 27, 2012).

   The Attorney General of Delaware is the son of the Vice President of the United States.  However, Attorney General Biden has carefully crafted his statements about the Federal Residential Mortgage-Based Securities Working Group, and about the scope of the Great Financial Fraud settlement with the Banks that is so highly favored by the Administration of which his father is a member.

   Attorney General Biden has made it clear that he will support the Federal RMBS Working Group, and even participate in it, but his participation in the Working Group does not include participating in any settlement demanded by the Banks before the State investigations are concluded into what the Banks actually did, and for which they now demand immunity in a settlement.   See Interview of Delaware Attorney General Joseph "Beau" Biden, III with Dylan Rattigan, entitled, "DE AG Beau Biden:  Too Big to Fail Banks Believe The Enforcement Side is 'Scared'".

The "New Golden Rule":  "The One Who Has The Gold, Makes The Rules."

      Even if further staffing of the RMBS Working Group may include some State or other non-Federal employees, apparently the Federal Government will fund it.  See Edward Wyatt, "New Fraud Investigation Group Issues Subpoenas to Financial Companies" p. B3, col. 1 (New York Times Nat'l ed., "Business" Section, Saturday, January 28, 2012).

Not Participating, Yet, But Continuing to Pursue Investigations They Began Long Before the Federal Government's New Working Group.

   As of the beginning of this week, or as of Monday, January 30, 2012, there was no announcement, let alone a press release, about the Federal RMBS Working Group, on the websites of any of the three other State Attorneys General who have expressed reservations about, or withdrawn from the current Mortgage Servicer Fraud settlement talks with the Banks:

1. California;
2. Massachusetts; and
3. Nevada.

As noted, they filed lawsuits long before the Federal Government got around to releasing press releases about the new Federally headed Residential Mortgage-Backed Securities Working Group.

To be continued in the final installment of this series, on Insurance Claims and Bad Faith Law Blog.

Please Read The Disclaimer.

Is The Fix In: Residential Mortgage-Backed Securities Working Group?

   Settlement talks have been taking place for awhile between five (5) huge Mortgage Servicers and most if not all of the fifty (50) State Attorneys General and the Obama Justice Department.  The talks started about the issues of "robosigning" and other issues of Fraud strictly arising from Mortgage Servicers' alleged conduct in Foreclosures.  October 27, 2011 post on Insurance Claims and Bad Faith Law Blog.

The five huge Mortgage Servicers participating in the settlement talks are:

1. Bank of America;
2.  JPMorgan Chase;
3. Wells Fargo;
4. Citigroup; and
5. Ally Financial.*

*Ally Financial's "mortgage unit" is now the Employer of escapees from the executive ranks of Bear Stearns' mortgage-backed securities department and the Bear Stearns due diligence section.  The two individuals and Bear Stearns, and  JPMorgan Chase, are all defendants in a civil case filed by private investors who claim that the Bear Stearns' residential mortgage-backed securitization caused them damage.  Gretchen Morgenson, "Fair Game / It Has a Fancy Name, But Will It Get Tough?"  p.1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, January 29, 2012).

 

All five of them are also Banks.

   The Mortgage Servicers' (and Banks') settlement talks expanded to discuss settlement which the Banks wanted very much, and still want dearly.   Settlement would now include all their exposure from Residential Mortgage-Backed Fraud, and not just their exposure as Mortgage Servicers.  In other words, any settlement would have to include accommodating the Banks' insistence that their as yet unknown liability be capped for their activities in selling Mortgages to Homeowners-Mortgagors in the first place.

   The Obama Administration reportedly tried to pressure the State Attorneys General into accepting the Banks' terms for settlement.  HUD Secretary SHAUN DONOVAN reportedly was in charge of the attempts at applying the pressure.  January 25, 2012 post, Insurance Coverage Claims and Issues Weblog.  "The housing secretary, Shaun Donovan, met on Monday [January 23, 2012] in Chicago with Democratic attorneys general to iron out the remaining details and to persuade holdouts to agree with any eventual deal.  He later held a conference call with Republican attorneys general."  Nelson D. Schwartz and Shaila Dewan, "Political Push Moves a Deal On Mortgages Inches Closer" p. B1, col. 5 (New York Times Nat'l ed., Tuesday, January 24, 2012).

   Previously, at least one State's (California's) Attorney General had walked out on the settlement talks, and others did not actively participate in expanding them or "voiced unhappiness" with the talks.  There were reportedly eight (8) State Attorneys General in this group, from:

1. California;
2. Delaware;
3. Illinois;
4. Kentucky;
5. Massachusetts;
6. Minnesota;
7. Nevada; and
8. New York.

 E.g., January 9, 2012 post on Insurance Claims and Issues Weblog; October 27, 2011 post on Insurance Claims Bad Faith Law Blog.

The SEC and the DOJ File Lawsuits in the Interim, With the Effect if Not the Purpose of Forcing the Banks to Settle on the Banks' Terms.

   While the Mortgage Fraud settlement talks have been going on, the Securities and Exchange Commission and the Department of Justice have filed several actions against Banks, accusing them of Fraud which contributed to the Residential Mortgage-Backed Securitization Fiasco.  "Their record in these pursuits has been disappointing so far."  Gretchen Morgenson, New York Times, supra.   They have filed criminal and civil actions which have resulted mostly in settlements without convictions.  See, e.g., October 25, 2011 post on Insurance Claims and Bad Faith Law Blog.

 The SEC's Record on Settlements.

   The SEC even says that it thinks that settlements bring as much money as Judgments for Damages.  "'Put Your Hands Up Or We'll ... SETTLE!'  Not Hardly Pilgrim", December 19, 2011 post on Insurance Claims and Issues Web Log; December 18, 2011 post on Insurance Claims and Bad Faith Law Blog.

   The SEC does not mention very often, if ever, that its settlements with the defendant Banks are paid by shareholders and not by the perps.  See Gretchen Morgenson, New York Times, supra.

 The SEC's and DOJ's Record, Together, in Civil Enforcement Actions.

      Recoveries are vastly greater in PRIVATE civil enforcement actions than in any civil enforcement actions filed either by the SEC or the DOJ -- or by any other agency of the current Federal Government.  December 18, 2011 post, Insurance Claims and Bad Faith Law Blog.

The DOJ established a Task Force.  Only the DOJ, And Not the SEC, Can File Criminal Prosecutions Over Mortgage Fraud.  No CRIMINAL proceedings Have EVER Been Filed By DOJ As a Result of Residential Mortgage-Backed Securitization Fraud.

    The Department of Justice established a Financial Fraud Enforcement Task Force a couple of years ago.   Its Chair is Attorney General Eric Holder.  www.stopfraud.gov.

   There is no record of any DOJ criminal prosecution over Mortgage Fraud Foreclosures, or over Mortgage-Backed Securitization, for that matter.

 Where Does That Put the New RMBS Working Group?

   The new RMBS Working Group has been put under the Financial Fraud Enforcement Task Force.

 This post is a first.  It is the first part of a post which continues from Insurance Claims and Issues Blog, to Insurance Bad Faith Law Blog, and for the first time....

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Mortgage Foreclosure Fraud ... Again?

   The Fix is almost in.  Maybe.

   As these words are written, the 2012 State of the Union Address has not yet been given.  2012 is also an election year for the President, of course.

   Obama Administration officials, chiefly the Secretary of Housing and Urban Development, are reportedly engaged in pressuring State Attorneys General to release Mortgage Servicers not only from fraud claims or causes of action based on their conduct as Mortgage Servicers, but also from all their liability to all civil claims based on their conduct in lending and securing Mortgages in the first place including subprime Mortgage lending.  See Nelson D. Schwartz and Shaila Dewan, "Political Push Moves a Deal On Mortgages Inches Closer" p. B1, col. 5 (New York Times Nat'l ed., "Business Day" Section, Tuesday, January 24, 2012) .

   The current Banks a/k/a Mortgage Servicers involved in these talks include:

1. Bank of America;
2. Citigroup;
3. JPMorgan Chase;
4. Wells Fargo; and
5. Ally Financial.

The current payment configuration would be for an average payment of "about $20,000" to "[a]bout one million homeowners".  There are 8 million Homeowners currently in Foreclosure.  Id.

   In addition, there are 11 million Homeowners whose home value exceeds the Mortgaged amount.  On average, they alone owe two to two-and-one-half times the average amount payable to 1/19 of all the Homeowners in question.  See id.  Even with that average amount of $20,000.00 which would be paid by the Banks-Mortgage Servicers, in other words, eleven million more Homeowners are still subject to Foreclosure if this deal is accepted, leaving a total of 19 MILLION Homeowners still subject to Foreclosure.

   Some deal.  But that is not all.

   The "average amount" payable by the Banks-Mortgage Servicers fluctuates depending on how many States agree to release the Banks-Mortgage Servicers from unknown liabilities.  It may be less.

   In any event, at this time, the Attorneys General of California, Massachusetts, Nevada, and New York, among other States, are having none of it.  The Homeowners and all citizens of their States are fortunate to have them on the job.

Please Read The Disclaimer.

Robichaux Rulings, Redux (Part 2 of 2).

This continues a post here from January 4, 2012.

 

   The winds and waters of Hurricane Katrina struck Michael and Mary Robichauxes' home, detached garage, shed and personal property.  Their home, which had been located one block north of the Gulf of Mexico, was destroyed.  Mr. and Mrs. Robichaux made a claim on their Homeowner's Policy with Nationwide after the resulting destruction and damage.

   The Robichauxes' Homeowner's Policy with Nationwide provided limits, in pertinent part, of $131,000.00 for Coverage A for their Dwelling, $13,100.00 for Coverage B for Other Structures, and $97,405.00 for Coverage C, or Personal Property Coverage.  Robichaux v. Nationwide Mutual Fire Insurance Co., 2011 WL 6224472 *1, ¶ 4 (Miss. December 15, 2011), Download Robichaux v. Nationwide Mutual Fire Insurance Co. (Miss. Case No. 2010CA00109, Opinion Filed December 15, 2011) PUBLIC ACCESS.  Their Nationwide Homeowner's Policy carried "a hurricane rider," said the Mississippi Supreme Court, "which covered damage occurring as a result of a 'windstorm during a hurricane.'...  The hurricane endorsement covered damage to the dwelling and other structures, as well as personal property."  Id. 

   The Homeowner's Policy provided coverage for damage to the dwelling and to other structures caused by "all risks," while coverage was extended to damage to personal property which was caused by named perils.  Id. at *7, ¶ 26.

   Finally, the Policy also contained a Flood Exclusion and an Anti-Concurrent Cause Exclusion as well.  See id. at *4, ¶ 16.

   Nationwide at first denied the Robichauxes' claim "based on a finding that the loss was caused by water or water-borne material as defined by the policy."  Id. at ¶ 5.  Nationwide's denial of all coverage was based on various investigative reports "as well as the flood exclusion and anti-concurrent language in the subject policy ...."  Id.

   On an unreported date, Nationwide changed its mind and offered small amounts to settle the Robichauxes' claims "for potential dwelling damage" and for "potential damage to other structures".  The reasons for Nationwide's change of position are not given by the Mississippi Supreme Court in its opinion.  In any event, Mr. and Mrs. Robichaux returned the checks to Nationwide, uncashed.  Id. at *2 ¶ 6.  Instead, they sued Nationwide for "declaratory and injunctive relief, including indemnity under the insurance contract, compensatory and punitive damages, specific performance of the insurance contract, attorneys' fees, and ... [for] fraud and bad faith by the insurer and its agent."  Id. at *1, ¶ 1.

   Following a peripatetic journey from Mississippi State Court to Federal Court and back to State Court again, the Trial Court entered Summary Judgment for Nationwide.  The Robichauxes appealed.

 1.  The Anti-Concurrent Cause Clause Does Not Apply Every Time That Water Appears.

    The Mississippi Supreme Court first held in pertinent part that the Homeowner's Policy at bar is not ambiguous.  The joint appearance in the same Policy of both a Hurricane Endorsement and an Anti-Concurrent Cause Clause does not provide an ambiguity, the Court held.  Id. at *4, ¶ 17.

   However, neither that ruling or the evidence in this particular case answers the question whether wind damaged the Robichauxes' property before Hurricane Katrina's flood left behind only the slabs of their home and their detached  garage:

However, the trial court erred in concluding that no genuine issue of material fact existed as to whether wind damaged the property prior to its destruction by storm surge.  Whether Nationwide had a duty of indemnity under the policy for wind damage, if any, occurring prior to the storm surge presents a triable issue of fact.

Id. at *5, ¶ 18.

  This ruling was applied not only to the Dwelling Coverage Claim under Coverage A, but also to the "Other Structures" Coverage under Coverage B, id. at *6, ¶ 24, and to the Personal Property Coverage Claim under Coverage C.  Id. at *7, ¶ 25.  However, before the Supreme Court could determine whether the Trial Court's Summary Judgment should be reversed on any of these issues, it needed to address another issue:  whether the Policyholders in this case were recovering two times for the same damages. 

 2.  The Anti-Concurrent Cause Exclusion Only Applies in Mississippi, the Mississippi Supreme Court Continues to Hold, When Wind and Noncovered Causes Concur to Cause Damage, Not Just Because There is a Noncovered Cause in a Case.

   The Robichaux Court adhered to its earlier ruling in Corban v. United States Automobile Association, 20 So. 3d 601 (Miss. 2009), and to other settled Mississippi law concerning All Risks Coverage, Named Peril Policies, and Anti-Concurrent Cause Clauses.  Here is how it did so.

   As noted, the Homeowner's Policy which Nationwide issued to Mr. and Mrs. Robichaux contained "All Risks" Coverage for the Dwelling and Other Structures, and "Named Perils" Coverage for their Personal Property.

   In virtually all American jurisdictions, the burden of proof that an Exclusion applies to a claim under an Insurance Policy is a burden belonging to the Insurance Company.  This rule of law applies in Mississippi as in other States, and it was applied to Anti-Concurrent Cause Exclusions by the Mississippi Supreme in Corban.

   As in Corban, the Mississippi Supreme Court in Robichaux held that the burden of proof belongs to the Homeowner's Insurance Company that its Anti-Concurrent Cause Exclusion applies.   Here, however, the Anti-Concurrent Clause does not apply, according to the Court:

The evidence in the present case shows that not all of the damage to the Robichaux residence was caused by the simultaneous convergence of wind and water; accordingly, the ACC clause was inapplicable.

Id. at *5, ¶ 19.

   In sum, in this case, in accordance with universally accepted rules the Policyholder bears the burden of proof on Insurance Coverage in the first place, and the Insurance Company bears the burden of proving that its Exclusions apply:

[U]pon remand, Nationwide has the burden of proving that the other structures under Coverage B were damaged by an excluded peril.  The converse is true with regard to the Robichauxes' burden of proving that personal property under Coverage C suffered accidental, direct, physical loss as a result of one of the enumerated perils, namely windstorm.

Id. at *7, ¶ 28.

 

  Please Read The Disclaimer.

Link to Good Cavalcade of Risks 149!

    A collection of excellent posts on risk in general, and many on Insurance in particular, is coming in the 149 Cavalcade of Risk.  It is being hosted by http://notwithstandingblog.wordpress.com/.  

   And here again is a link to the hosting blog:  http://notwithstandingblog.wordpress.com/  This is a blog written for the reader.  In my exploration of this blog today, I found it informative in substance and courteous, even polite, in tone.  It is well worth spending a few minutes there.  It is not your ordinary blog, as they say.  In my judgment, it is extraordinary.

   Enjoy your internet research and reading! 

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HEALTH INSURANCE: "UNREASONABLE RATE INCREASES" SUBJECT TO REVIEW -- AND MORE.

"Before the Affordable Care Act, consumers were in the dark about their health insurance premiums, because there was no nationwide transparency or accountability.  Now, [health] insurance companies are required to disclose rate increases over 10 percent and justify those increases.  It's time for Trustmark to immediately rescind the rates, issue refunds to consumers or publicly explain their refusal to do so."

Kathleen Sebelius, Secretary of the U.S. Department of Health & Human Services, quoted in H.H.S. News Release of January 12, 2012, "Affordable Care Act Holding Insurers Accountable for Premium Hikes".   

   Many States' Statutes require Health and other Insurance Companies to submit proposed Premium increases before raising rates and, if permission is not given to raise rates or is given but for a lesser sum, then the originally requested increases cannot lawfully take effect.  Recent examples in particular of Health Insurance Premium increases which State Insurance Commissioners have modified under these powers of approval include Connecticut, New Mexico, New York, Oregon, and Rhode Island according to the Secretary of Health and Human Services.  See id.

   The Affordable Care Act or "ACA" consists of two sets of laws passed by Congress on the same day.  One is the Patient Protection and Affordable Care Act, and the other is the Health Care and Education Reconciliation Act.  Together they renumbered and amended the provisions of Section 2794 of the Public Health Service Act which relates to Health Insurance Rate Increase Disclosure and Review.  In it, in basic terms, the HHS Secretary was given certain powers concerning increases of greater than 10 percent or "unreasonable rate increases".

   More specifically, certain authority was given by the ACA to a part of HHS, the Centers for Medicare and Medicaid Services or "CMS".  (What would we be without our acronyms?)  See 45 C.F.R. §§ 154.101 - 154.301.

   Unlike the prior approval authority given by many States to State Insurance Commissioners over proposed Premium Rate Increase Requests, the ACA provides for after-the-fact authority only to in essence require Health Insurance Companies which have already raised their Premiums by more than 10 percent to "justify" their increase on their websites for all to see.  This is what Secretary Sebelius was referring to in the above-quoted News Release about the ACA mandating disclosure and justification of increases over 10 percent.

   The ACA further provides that if the Health Insurance Company reduces part of its rate increase but the result is still greater than 10 percent, then in that event the Health Insurance Company must submit its new increase for review all over again.  If the resulting amount is not a 10 percent or greater increase then the Health Insurance Company does not need to re-submit its increase for review under the ACA.

   In the case of Trustmark Life Insurance Company, however, and in the News Release quoted at the beginning of this post, the HHS Secretary seemed to announce more than the ACA provides.  You might call it 'political fill,' by which the HHS Secretary filled in the blanks not explicitly addressed by the law but nonetheless described the law's logical conclusion in such matters.

   Trustmark, a Health Insurance Company despite its name, raised Health Insurance Premiums by more than 10 percent in the States of Alabama, Arizona, Pennsylvania, Virginia, and Wyoming.  In the apparent absence of approval of the Trustmark rate increases by the State Insurance Commissioners in those States, the HHS Secretary acted under the ACA to declare Trustmark's increases in those States "unreasonable".  This meant that, under the ACA, Trustmark will be required to now post this fact on its own website alongside its justification for such a Health Insurance Premium increase.

   Yet, as noted, the Secretary did more.  She called on Trustmark to:

1. "immediately rescind the rates" and "issue refunds to consumers or"
2. "publicly explain their refusal to do so."

Clearly, even though the ACA seems to be silent on the subject, if a Health Insurance Company decides to "rescind" its increase after the increase is publicly tagged as "unreasonable," it follows that the Company cannot lawfully keep its 'ill-gotten gains' in that event but should instead return them to the persons who paid those Premiums.  If they instead keep those gains even after renouncing the "unreasonable rate increases," such Health Insurance Companies should of course justify that course of conduct.

   There is nothing in the ACA which I have found which requires this, however.  Common sense and fundamental fairness do require this, whether or not the ACA does.  In addition to announcing action authorized by the ACA in this case, the Health and Human Services Secretary also invoked common sense and fundamental fairness.

   Poor Trustmark.  It probably did not know what hit it.

   It does now.

 The administrative action taken by the Secretary is announced in this News Release, entitled "Affordable Care Act Holding Insurers Accountable for Premium Hikes" (released January 12, 2012).  See, in addition, Robert Pear, "U.S. Seeks Rollback of a Health Insurer's 'Excessive" Rate Increase" p. A11, col. 1 (New York Times Nat'l ed., Friday, January 13, 2012).

  

The author is Co-Chair of the Health, Life and Disability Insurance Subcommittee of the American Bar Association's Insurance Coverage Litigation Committee.

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NO AUTO LIABILITY INSURANCE COVERAGE FOR TEXTING WHILE DRIVING?

"We have an obligation to pay that claim, to protect that innocent bystander, even if you were stupid."  Ms. Loretta Worters, Vice President of the Insurance Information Institute ("III"), quoted by Ann Carrns, "Texting, Driving and Insurance" p. B4, col. 5 (New York Times Nat'l ed., "Business Day" Section / Bucks Blog, Saturday, January 14, 2012), edited and posted Online under the headline, "What if Insurers Didn't Pay for Crashes Caused by Texting?".

 

   Should Automobile Liability Insurance Coverage extend to cover texting while driving?

 

   Many standard Exclusions already exist for things like hazardous activity, but the hazardous activity excluded by these standard provisions is usually undertaken by large business organizations.  Specifically excluded hazardous activities are addressed by Pollution Exclusions, for example.

   Of course, there are currently also standard Exclusions in Automobile Liability Insurance Policies for risks which are ordinarily compensated by other types of Insurance such as Workers' Compensation, Employee Indemnification and Employer's Liability, and Fellow Employee Exclusions.

   There is also a standard Exclusion currently in effect which is written to address the risks associated with a type of dangerous driving which Insurers simply will not assume under Automobile Liability Insurance Policies:  Racing.  The standard Racing Exclusion applies to exclude all Automobile Liability Insurance Coverage, in brief, for (1) covered autos while they are being used in professional or organized racing contests, (2) practicing for them, and (3) while the auto in question is being prepared for a racing contest or activity.

   This seems arguably similar to any proposed Exclusion for the dangers or risks inherent in texting while driving the covered auto:  Such an Exclusion would presumably exclude all Automobile Liability Insurance Coverage for covered autos while they are being used simultaneously with the driver's texting.

   If an Exclusion seems inappropriate for any reason, perhaps that is because arguably the nub of the Coverage question is the position that there should never be Automobile Liability Insurance Coverage for any damages caused by the use of a covered auto which would not have occurred but for the driver texting.

   There is simply no good reason why Automobile Liability Insurance Policies should be made to respond to Cover damages resulting from texting activity, in the face of new, express Policy language appropriately written into the standard Automobile Liability Insurance Policy.

 

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Today is Dr. King's Birthday observed.  Remember the good and be well.

Individual Damaged Homeowners No Place to Stand, Court Says, Over HOA Homeowner's Policy.

   Individual Homeowners may have Property Damage claims.  Their Homeowners Association may have a Homeowner's Insurance Policy.  The individual Homeowners may seek to make a claim under it.  Can they?

   The Court in a recent Federal Case said, "No."  In that case, the Court held that individual Homeowners (or, in that case, Condominium Owners)  do not have standing to sue over their HOA's Homeowner's Insurance Policy (or, once again, in that case an "Association of Apartment Owners" Policy).    Peters v. Lexington Insurance Co., 2011 WL 6779598 *4 (D. Hawai'i December 27, 2011), Download Peters v. Lexington Ins. Co. (D. Haw. Case No. 11.00355, Order Filed Dec. 27, 2011 Granting Defendant's Motion for JOP) PUBLIC ACCESS.

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Silence on the Mortgage Fraud Settlement Front, For Now.

This updates posts here and on Insurance Claims Bad Faith Law Blog addressing why and how the Attorney Generals of California, Massachusetts and Nevada, among other jurisdictions, have all rejected the idea of engaging in settlement talks over uninvestigated, unknown liabilities of Mortgage Servicers and their Banks as a part of settlement negotiations over established fraudulent Mortgage lending and servicing practices.

   Talks led by the Iowa Attorney General, with assistance and a push from the Obama Administration, apparently continue with Mortgage Servicers and Lenders to settle potential claims over their Mortgage servicing and lending practices.  The talks apparently continue even without the California Attorney General, and without the approval of Attorneys General from other jurisdictions including Massachusetts and Nevada:

Why strike a deal -- one that would, say, shield banks from new litigation over toxic loans, flawed securitizations and the mess at MERS, the registry that has made such a jumble of land records -- without knowing what happened?

Gretchen Morgenson, "Fair Game / From East And West, Foreclosure Horror Stories" p. 1, col. 1 (New York Times Online, "SundayBusiness" Section, Sunday, January 8, 2012).

   Why, indeed?

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Double Recovery is a Matter of Proof, Not Opinion.

The winds and waters of Hurricane Katrina have spawned more than one blog post, article, book.  So it is with a recent decision by the Supreme Court of Mississsippi.  The new decision has so many features that it has been the subject of commentary on Insurance Claims and Bad Faith Law Blog, and in this continuing post as well.

   Hurricane Katrina struck Michael and Mary Robichauxes' home, detached garage, shed and personal property.  Their home, which had been located one block north of the Gulf of Mexico, was destroyed.  Mr. and Mrs. Robichaux made a claim on their Homeowner's Policy with Nationwide after the resulting destruction and damage.

   The Robichauxes' Homeowner's Policy with Nationwide provided limits, in pertinent part, of $131,000.00 for Coverage A for their Dwelling, $13,100.00 for Coverage B for Other Structures, and $97,405.00 for Coverage C, or Personal Property Coverage.  Robichaux v. Nationwide Mutual Fire Insurance Co., 2011 WL 6224472 *1, ¶ 4 (Miss. December 15, 2011), Download Robichaux v. Nationwide Mutual Fire Insurance Co. (Miss. Case No. 2010CA00109, Opinion Filed December 15, 2011) PUBLIC ACCESS.  Their Nationwide Homeowner's Policy carried "a hurricane rider," said the Mississippi Supreme Court, "which covered damage occurring as a result of a 'windstorm during a hurricane.'...  The hurricane endorsement covered damage to the dwelling and other structures, as well as personal property."  Id. 

   The Homeowner's Policy provided coverage for damage to the dwelling and to other structures caused by "all risks," while coverage was extended to damage to personal property which was caused by named perils.  Id. at *7, ¶ 26.

   Finally, the Policy also contained a Flood Exclusion and an Anti-Concurrent Cause Exclusion as well.  See id. at *4, ¶ 16.

   Nationwide at first denied the Robichauxes' claim "based on a finding that the loss was caused by water or water-borne material as defined by the policy."  Id. at ¶ 5.  Nationwide's denial of all coverage was based on various investigative reports "as well as the flood exclusion and anti-concurrent language in the subject policy ...."  Id.

   On an unreported date, Nationwide changed its mind and offered small amounts to settle the Robichauxes' claims "for potential dwelling damage" and for "potential damage to other structures".  The reasons for Nationwide's change of position are not given by the Mississippi Supreme Court in its opinion.  In any event, Mr. and Mrs. Robichaux returned the checks to Nationwide, uncashed.  Id. at *2 ¶ 6.  Instead, they sued Nationwide for "declaratory and injunctive relief, including indemnity under the insurance contract, compensatory and punitive damages, specific performance of the insurance contract, attorneys' fees, and ... [for] fraud and bad faith by the insurer and its agent."  Id. at *1, ¶ 1.

   Following a peripatetic journey from Mississippi State Court to Federal Court and back to State Court again, the Trial Court entered Summary Judgment for Nationwide.  The Robichauxes appealed.

Apparent Overpayment of Flood Insurance for a Dwelling is Not a Double Recovery For Uncompensated Damage to Other Structures.

    Dwelling Coverage.  Mr. and Mrs. Robichaux had a Flood Insurance Policy in addition to their Homeowner's Policy.  "The flood policy paid $136,500 for flood damage to the dwelling and $70,400 for flood damage to the contents of the home, amounts which constituted the policy limits."  Id. at *2, ¶ 6.  Even assuming the highest possible value of the Robichauxes' home which was supported by the evidence in the amount of $185,000.00, the Trial Court found that the land value was $53,860.00, resulting in a difference of $131,140.00 in the best possible case for the Policyholders here.  Since there could be no claim for Dwelling Coverage under the Nationwide Policy without double recovery here, the Summary Judgment for Nationwide was affirmed in this regard.  Id. at *6, ¶ 22.

   Other Structures Coverage.  The Trial Court found that the Robichauxes' shed and garage had a value of $5,000.00.  Given that the Robichauxes received $136,500.00 from their Flood Insurer for a dwelling with a value of at most $131,140.00, the Trial Court also "found" that the Robichauxes were effectively over-compensated for their Other Structures as well.

   This ruling was reversed on appeal.  "However, the record does not show that the payment of $136,500 for flood damage was intended to compensate for losses to other structures.  In fact, the estimate prepared by the flood insurance adjuster was described as an 'estimate to replace the dwelling,' with no mention of other structures."  Id. at *6, ¶ 24.  Accordingly, the issue of "whether wind damaged the other structures prior to their destruction by storm surge" was remanded for "a jury determination".  Id.

   Personal Property Coverage.  As noted, the Flood Insurance Carrier here paid its Contents Coverage Policy limits of $70,400.00.  The total damage to the Robichauxes' Personal Property was claimed to be $186,144.00.  Reversal on this issue was required in this case, wrote the Mississippi Supreme Court.  "Since the Robichauxes have not been compensated for the full value of their personal property, we remand this case to the trial court for a jury trial on the issue of whether wind damaged the Robichauxes' personal property prior to the flood damage."  Id. at *7, ¶ 25.

That concludes the holdings of the Mississippi Supreme Court in the Robichaux case on the issue of pleading and proving "double recovery" of insurance benefits.  The Court also addressed Insurance Coverage interpretation issues in this case.

  To be continued ..............

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Title Insurance Coverage for Access to Lake Michigan.

   Title Insurance Policy Exceptions were at issue in Plastow v. Lawyers Title Insurance Corp., 2011 WL 6370570 (W.D. Mich. December 20, 2011), Download Plastow v. Lawyers Title Insurance Corp. (W.D. Mich. Case No. 1.10cv703, Opinion Filed December 20, 2011) PUBLIC ACCESS.  The Federal District Judge applied the law which is generally applicable to interpreting Insurance Policies, and held in favor of Coverage under the Title Insurance Policy at bar.

   Mr. and Mrs. Plastow owned property with access to Lake Michigan since 1980.  At first, they built a summer cottage on the Property, which they used until 2006.  In 2006, they began using the Property as their primary residence and in 2007 they completed construction and took occupancy of a new house on the Property.  Id. at *2.  Back when they bought the Property in the first place -- the Title Insurance Policy at issue bears a "'Date of Policy'" of December 18, 1979 -- the Plastows bought Title Insurance from the Defendant, Lawyers Title.  Id. at *1.  As is usual and ordinary, this particular Title Insurance Policy contained certain stated "exceptions" to Coverage.  Id. at *2.

   Over time, local inhabitants of a subdivision called Timberlane Terrace used the beach which the Plastows thought they owned exclusively.  In 2008, one of the Timberlane Terrace property owners wrote the Plastows a letter asserting rights to use the beach.  The Plastows sent this letter to the Title Insurance Company and demanded both a defense and indemnity.  Defendant acknowledged receipt of the information but stated no position on Insurance Coverage.  Id. at *3.  Making a long story short, so to speak, some Timberlane Terrace property owners retained an attorney who sent the Plastows a letter.  Thereafter, the Plastows sued all 87 Temple Terrace property owners asserting exclusive rights to the beach on Lake Michigan.  Twenty-five of the defendants from Temple Terrace counterclaimed against Mr. and Mrs. Plastow, who again put the Title Insurance Company on notice.  Once again the Plastows demanded a defense and indemnity.  This time, the Title Insurance Company denied all Coverage, not because the claims from Temple Terrace were not covered in the first place, but because of two of the exceptions in this Title Insurance Policy.  Id. at *5.

   In an interesting application of Insurance Policy rules of interpretation, the Federal Court treated the exceptions as Exclusions are treated under Michigan Insurance Law:  These Title Insurance Policy exceptions were not "clear or specific" and Exclusions which are not clearly and specifically stated raise doubts about their application which, under Michigan law, are to be resolved in favor of the Policyholders.  Accordingly, in this case the Federal Court declared "as a matter of law" that neither exception applied to exclude the Defendant's Duty to Defend or its Duty to Indemnify, and held that the Plastows' Motion for Partial Summary Judgment should be granted accordingly, and further held that the Defendant was guilty of a Breach of Contract.  Id. at *9 - *11.  The Federal Judge concisely summarized her holding in this case as follows, as the Court entered Judgment for the Plastows:

     In sum, the claims asserted against Plaintiffs by the Timberlane Terrace property owners were covered by the general terms of the Policy, and the coverage was not negated by the coverage exceptions on which Defendant relies.

Id. at *10.

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D&O Wars II.

"Instead of an attack on the 1 percent, let's call it an attack on the very productive."

Max Abelson, "Bankers Join Billionaires to Debunk 'Imbecile' Attack on Top 1%" (Bloomberg Online, Tuesday, December 20, 2011), quoting what is described as a current Director [Chairman of the Board] and a former CEO of BB&T Corporation, "the ninth-largest U.S. bank".  [Emphasis added to quotation.]  The individual is also a current "Distinguished Professor of Practice" at Wake Forest.

   Some Directors and some Officers are very productive in producing D&O Claims at this time.  See generally "D&O WARS:  CORPORATE SHAREHOLDERS PAY PREMIUMS; DIRECTORS, OFFICERS DO NOT," posted here on December 21, 2011.  Without the unfortunate conduct of some Directors and some Officers before and during the Great Economic Fiasco through which we are all now living, there would definitely be many fewer opportunities for Courts to decide D&O Insurance Coverage issues. 

HAPPY HOLIDAYS TO ALL, AND TO ALL A HAPPY NEW YEAR!

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D&O WARS: CORPORATE SHAREHOLDERS PAY PREMIUMS; DIRECTORS, OFFICERS DO NOT.

 

Underwriting vs. Claims, again.

    Directors and Officers Insurance Premiums are paid by their corporations.  That of course means that D&O Premiums are really paid by the Shareholders.  See Louise Story, "Ex-Bank Executives Settle F.D.I.C. Lawsuit" (New York Times Online, December 13, 2011).

   D&O Policies are Liability Insurance Policies of course.  D&O Policies provide Insurance Coverage for Defense and Indemnity.  Directors' and Officers' Defense Fees are paid as they are incurred.  The effect is that covered Directors and Officers hire large law firms to provide them with the best possible defense.  See the list of counsel representing the Defendant Officer in Federal Deposit Insurance Corp., as Receiver for Indymac Bank, F.S.B. v. Perry, 2011 WL 6178544 (C.D. Cal. December 13, 2011), Download FDIC as Receiver for Indymac Bank, FSB v. Perry (C.D. Cal. Case No. 11.5561, Order Denying Defendant's Motion to Dismiss, Filed Dec. 13, 2011) PUBLIC ACCESS.  Parenthetically, this is not a guarantee of success on the merits.  See id. at *2-*4 (Motion to Dismiss of Defendant Officer, based on California Business Judgment Rule or "BJR," was denied because, as the Court pointed out in its opinion, the California Business Judgment Rule "does not apply to corporate decisions of officers in California," no case has ever applied it to officers under California law, and California statutes on the Business Judgment Rule expressly apply to directors without conferring BJR protection on corporate officers at all).

   In yet the latest visible manifestation of a sometimes covert war between Underwriting and Claims, some Insurance Companies are marketing D&O Coverage to apply to "clawbacks," i.e., to claims for "the return of money people never should have received."  Reuters Breaking Views, "Pushing Back on Clawbacks" p. B2, col. 1 (New York Times Nat'l ed., "Business Day" Section, Tuesday, December 20, 2011), published in an edited version online with the headline, "Pushing Back on Clawbacks".

   It seems that there is an available argument that Public Policy should prohibit Insurance Coverage for the underlying acts that result in the clawback claims.  Since the Financial Institutions, Reform, Recovery and Reinforcement Act of 1989 ("FIRREA") provides for clawback claims in cases of "gross negligence" and in cases subject to State causes of action at least equal to "gross negligence," whatever the State causes of action may be labeled and even if the State claims are simply labeled as "negligence," see F.D.I.C. v. Perry, 2011 WL 6178544 at *1 n.1, it seems that Public Policy may be involved to raise an argument against providing the perpetrators with Insurance Coverage against clawback claims.

   This may not mean that Insurance Companies will not necessarily pay Defense or Indemnity expenses for clawback claims, however.  See Reuters Breaking Views in the New York Times of Tuesday, December 20, 2011, supra:  "And courts have ruled that insurance covering similar kinds of improper payments isn't enforceable.  But if insurers want to pay, there's nothing to stop them.  Most have agreed generally not to challenge reimbursement."

      In the end, unfortunately, Underwriting may still insist on marketing the "clawback coverage".

 

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"Put Your Hands Up, Or ... We'll SETTLE!" Not Hardly, Pilgrim.

   The Securities and Exchange Commission "enforcement chief" says settlements leave your client better off than what they could get if they went to Trial.  Edward Wyatt, "House Panel to Examine Settlements By S.E.C." p. B6, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, December 17, 2011), quoting "Robert Khuzami, the S.E.C.'s director of enforcement".  That is true only when you lose at Trial all the time.

   Anyone who has actually litigated cases knows that you settle when the risks to your client are greater than the chances of recovery.  No active practitioner ever consistently recommends settlements of potentially successful lawsuits because the amount of the settlements is equal to the amount or as much as your clients could get if they went to Trial.

   Evidence of this truth is clear.  Private lawsuits against "banks" return far more money than settlements negotiated by the S.E.C. and other currently staffed Federal agencies.

   What Insurance Coverages such lawsuits will trigger is even now  being litigated, along with the lawsuits themselves.  The plaintiffs are voting with their filing fees that they will be made whole faster and more efficiently by doing the recovery actions themselves, you might say: 

   If the bank settled with the investors using the same loss ratio that was applied in the Bank of America settlement [of a lawsuit filed by private investors], it would cost JPMorgan about $1.9 billion.  Still the bank would have other exposure outstanding.  JPMorgan faces about $31 billion in class-action cases, according to McCarthy Lawyer Links, a legal consulting firm.

   Elizabeth Nowicki, a professor of securities law at Tulane University and a former lawyer at the Securities and Exchange Commission, said that the efforts by investors might turn out to be the costliest and most important way that banks are held accountable for their mortgage security creations, because the push for accountability is coming from bank clients.  For instance, in the one mortgage security case the S.E.C. has brought against JPMorgan, the bank settled the allegations in June for $153.6 million.

Louise Story, "Investors Scrutinizing JPMorgan's Mortgages" p. B1, col. 6 (New York Times Nat'l ed., "Business Day" Section, Saturday, December 17, 2011).

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Link to Good Cavalcade of Risk Postings 146!

   There is a collection of excellent posts on risk in general, and many on Insurance in particular, at 146 Cavalcade of Risk.  Enjoy your internet research and reading!

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Why Medical Loss Ratios Matter.

   Under the new Patient Protection and Affordable Care Act and its Regulations which are being finalized at this time, Health Insurance Companies must spend a minimum of 80% of their payments on actual Health benefits for Medical Care for sick Insureds.  That is the Medical Loss Ratio.  If Health Insurance Companies covered by the Act and its Regulations spend less than the Ratio of  Benefits to so-called Administrative Expenses or Overhead, they will have to rebate Premiums to Policyholders. 

   Medical Loss Ratios clearly matter.  The way they work is explained further in an excellent post by Bruce Japsen on Prescriptions Blog on the New York Times website, "Final Rules Set for Insurers on Spending Ratios," posted on December 12, 2011.

The author is Co-Chair of the Health, Life and Disability Insurance Subcommittee of the American Bar Association's Insurance Coverage Litigation Committee.

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Late Notice Defense of Excess Carrier to Hurricane Claim Rejected.

   Banta Properties, Inc. is a property management company.  It purchased Primary Property Insurance Coverage from General Star and Excess Coverage from Arch Specialty.  The Arch Specialty Excess Policy was 'following form,' i.e., it followed the forms of the underlying General Star Policy and provided the same Coverage except on an Excess basis in this case.

   Immediately after incurring damage from Hurricane Wilma on or about October 24, 2005, Banta gave notice to General Star and filed a claim with General Star for Property Damage Coverage.  Banta Properties, Inc. v. Arch Specialty Insurance Co., 2011 WL 5928478  *1 (S.D. Fla. November 23, 2011),  Download Banta Props., Inc. v. Arch Specialty Ins. Co. (S.D. Fla. Case No. 10.61485, Order Denying Defendants MSJ Entered Nov. 22, Filed Nov. 23, 2011) PUBLIC ACCESS.  In March, 2008, General Star "tendered the policy limits of $2.5 million under that [General Star] insurance contract".    Banta then "filed an insurance claim against Arch for its excess coverage."  Id.

   Arch reserved rights to deny all Coverage.  In pertinent part, Arch asserted "prejudice" from late notice of Banta's Hurricane Claim.  With its reservation of rights in place, Arch inspected the properties.  Banta filed a Proof of Loss.  Arch did not pay.  Banta filed suit against Arch for Declaratory Relief and for alleged Breach of Contract.  Arch defended and filed a Motion for Summary Judgment based on late notice of Banta's Hurricane Claim.

   The District Court summarized Florida law concerning late notice under an insurance policy.  Florida law raises a rebuttable presumption of prejudice to the Insurance Company from late notice.  As noted, the presumption of prejudice from late notice is rebuttable.  Id. at *2.

   The District Court thereafter discussed two ways in which an Insured may rebut the presumption of prejudice "to survive a motion for summary judgment.  First, an insured may rebut the presumption by showing that another insurer using competent individuals made a complete investigation of the claim.  [Citation omitted.]  Second, an insured may show that the insurer had access to 'substantial information' regarding the claim, creating an issue of fact of whether the delay prejudiced the insurer."  Id. at *4.

   Here, General Star as the Primary Carrier thoroughly investigated Banta's Hurricane Damage Claim.  To say again, Arch was Banta's Excess Carrier.  Nonetheless, Arch retained consultants to inspect the properties where Banta claimed that it had incurred Damage.  Banta "also provided evidence" that Arch's inspectors/consultants inspected Banta's properties but that they did not inspect many of the items of Damage claimed by Banta or review any repair invoices for already completed repairs.  Further, "Arch's consultants stated that they did not review any documents from General Star's investigation record, so these consultants never saw the photographs or reports made by General Star's several consultants [record references omitted]."  Id. at *2.  [Emphasis added.]

   On this record, Arch, the Excess Carrier, filed a Motion for Summary Judgment based on late notice.  Arch argued in support of its motion that in this case, Banta's notice of loss to Arch was untimely as a matter of Florida law.  The District Court held that Banta's notice to Arch did not fall into that category in this case based on past case law, but that, even if it did, Florida law even then provides for a rebuttable presumption of prejudice from the late notice.  In this case, Banta had rebutted the presumption.  Arch's Motion was denied.  Id. at *4.

 

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Current Computer Models Predict Premium Increases, Not Hurricanes.

   Hurricanes are not the only Catastrophes.  Today is Pearl Harbor Day.  Remember Pearl Harbor and remember, too, that everyone's life is entitled to respect if only because all our lives, already too short, are every one subject to unexpected Catastrophes and losses.

    The role that computer models play in current Insurance Premium Rate Requests is again being looked at.  This is a recurring, if sporadic, occurrence.  See, for example, the post here on June 29, 2011, "More Computer Models Print Out In Put:  This Time, Coverage?"

   The Massachusetts Attorney General's Office sent a letter to the Massachusetts insurance rating bureau on November 17, 2011.  In it, the A.G. pointed out her position that "faulty computer-generated hurricane models have contributed to unnecessarily high home insurance rates for property owners across [Massachusetts]."  Mark Alan Lovewell, "A.G. Faults Hurricane Models For Inflating Homeowner Insurance Rates" (Vineyard Gazette, published online on Friday, December 2, 2011).

   Although the A.G.'s letter itself does not seem to be on the A.G.'s website, a Press Release dated November 17, 2011 is accessible there.  In it, the Massachusetts Attorney General makes clear both that transparency does not exist in making these computer models, and that accumulated actual evidence is ignored in the input into these models.  These are real problems for homeowners who must pay higher Premiums:

Most Massachusetts insurers use private prediction models to estimate expected hurricane losses when rating and underwriting a policy.  AG Coakley noted in her letter that the insurers are not appropriately detailing how the companies are using these models, and no regulatory body has reviewed most of these models to ensure that they are suitable for use in Massachusetts.  Not only are models not being reviewed, the Commissioner is allowing the use of models that have been rejected in other states, such as Florida.  Historically, these rejected models have inflated expected losses well above actual experience.

 Massachusetts Attorney General's Press Release of November 17, 2011 concerning her letter to the Commissioner of the Massachusetts Insurance Rating Bureau, entitled "AG Coakley Urges Hearing on Excessive Homeowner Insurance Rates / Estimates Possible Overcharges of Half a Billion Dollars Due to Untested Hurricane Models".  Both of these points are made in the linked Vineyard newspaper report as well.   Parenthetically, so-called 'information asymmetry' or unbalanced access to information used in the writing of Insurance and in the handling of Insurance Claims is also a frequent subject of current commentary.  See, e.g., "Asymmetrical Information Overload" posted on Insurance Claims and Bad Faith Law Blog on November 22, 2011. 

   It is reasonable to expect an even greater increase in the use of allegedly faulty computer-generated models of catastrophe risk, along with the leverage that comes from information asymmetry.  Through the first nine months of 2011, Property and Casualty Insurance Companies in the United States experienced "catastrophe-related losses" that doubled all of the catastrophe claim payouts of 2010, or $38,600,000,000.00 ($38.6 Billion) in the first nine months of this year.  See "U.S. P/C Insurers' Catastrophe Losses Top $38 Billion" (Insurance Journal, published online on Monday, December 5, 2011).

The author of this post is also Co-Author of "CATClaims:  Insurance Coverage For Natural And Man-Made Disasters" (Thomson Reuters West).

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Health Insurance Companies Ration Health Care.

   There are those who say that the Patient Protection and Affordable Care Act, which they call "Obamacare," rations Health Care.

   This would not be a new thing.  It would only change the identity of "who" rations our Health Care.

   Before the Act takes full effect, Health Insurance Companies ration Health Care with Exclusions and Premiums, as they have always done before.  See the interview with Dr. Donald M. Berwick, outgoing Administrator of the Centers for Medicare and Medicaid, by Robert Pear, "Health Official Takes Parting Shot at 'Waste'" p. 25, col. 1 (New York Times Nat'l ed., Sunday, December 4, 2011).

   Changing the identity of "who" rations Health Care changes the calculation of rationing.  In private hands, rationing Health Care is unseen.  Each of us can judge for ourselves based on our own experience whether the effect of that method is 'good'.  In public hands, the government is required to operate with transparency, as they say.  Sometimes, perhaps always, sunlight is in fact the best disinfectant.

The author is Co-Chair of the American Bar Association's Health, Life and Disability Insurance Subcommittee.

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ADVANCED NATIONAL FORUM ON BAD FAITH LITIGATION: ...

 

... AND IN THIS POST:  FLORIDA SINKHOLE CLAIMS.

    Florida Statute Sections 627.707, 627.7072, 627.7073, and 627.7074 prescribe much of the presentation and handling of Sinkhole Claims.  It has just been held that Sinkhole Claim Handling under a Homeowner's Policy strictly as these Florida Statutes prescribe, does not confer immunity or a complete defense to a Breach of Contract Claim.  Cook v. First Liberty Insurance Corp., 2011 WL 5834743 * 2 (M.D. Fla. November 21, 2011), Download Cook v. First Liberty Insurance Corp. (M.D. Fla. Case No. 8.10CV02634, Order on Defendant's Motion For Summary Judgment Filed Nov. 21, 2011) PUBLIC ACCESS.

   The reasoning of this decision is equally supportive of a similar ruling on an Insurer Bad Faith Claim, i.e., that following these Florida Sinkhole Statutes' prescriptions neither confers immunity nor is a complete defense. 

 

On the day of this post, Wednesday, November 30, 2011, we will begin the American Conference Institute's 2011 Advanced National Forum on Bad Faith Litigation.   I will be presenting on two panels.  I look forward to seeing you too in Orlando!

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Health Insurance Companies May Regret Mandate Deal.

 

   The Health Insurance industry thought that it got more than it gave up while it was doing deals with the White House before Health Insurance bills were submitted to Congress.  Most famously, Health Insurance Companies:

• Agreed not to contest Preexisting Conditions in most cases once the Federal Patient Protection and Affordable Care Act took effect.
• Agreed not to charge higher Premiums to certain Policyholders and Employees who had Coverage with Employer-based Health Insurance.
• Agreed to a potentially more difficult procedure in order to obtain Rescission than they now enjoy in many States.

 

   In exchange, the Health Insurance Companies got more than they probably ever thought that it was possible for them to get:  Mandatory Policyholders, i.e., a mandate in the new Federal Law which would effectively require people to have Health Insurance and therefore require them to pay a Premium to a Health Insurance Company.

   That is the mandate which is headed to the U.S. Supreme Court for a supposedly final say on whether a mandate to obtain Health Insurance Coverage is valid and enforceable.  See, e.g., Timothy Jost, post of November 14, 2011 on HealthAffairs Blog; "Framing the Supreme Court Case," HealthLawProf Blog post on November 15, 2011; and Mark Hall, "The Importance of the Individual Mandate ...," and related posts and Comments, itself posted on November 4, 2011 on HealthAffairs Blog.

   Many observers, me included, predict that the current five-person majority on the High Court will strike down the mandate, for whatever reason.  The question then becomes:  Is the mandate provision severable from the rest of the PPACA?  If it is severable, then that would leave intact all the things that America's Health Insurance Companies were giving up, only so that they could get a mandate with a huge pool of new Policyholders who would collectively pay enormous amounts of money in Premiums for Health Coverage.  Thus, if there is no mandate in the future, that would mean that Health Insurance Companies got nothing in exchange for things like those which I have just listed, among others:

• Coverage for Preexisting Conditions.
• Waiver of Premium Increases for Coverage for various claims.
• Obedience to Rescission laws which are less favorable than existing Rescission laws in many States, and in almost all Health Insurance Policies and Plans.

   The possibility that they gave up much, and will get nothing in exchange, is now sinking in to the consciousness of many of America's Health Insurance Companies.  See Julian Pacquet, "Insurers 'Terrified' of Supreme Court Ruling on Healthcare Reform Law" (The Hill / Healthwatch Blog, posted Tuesday, November 22, 2011).

 

The author is Co-Chair of the American Bar Association's Health, Life and Disability Insurance Subcommittee.

 

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Florida Health Premiums ... Hurricane Season Not Over Yet. BUT WAIT!

   From a blog report with many links comes unwanted news:  Florida Health Insurance Premiums are "skyrocketing":  Robert Trigaux, Business Editor of the St. Petersburg Times in his Venture Blog, "Florida's Still Losing the War on Skyrocketing Health Premiums" posted November 17, 2011.  And by the way, Hurricane Season is not officially over yet, either.

   While this post was being written and before going to press, so to speak, the Obama Administration responded to the rising tide of Premium Rate Hikes in Health Insurance.  Using a provision of the newly enacted Patient Protection and Affordable Care Act for the first time since the provision just took effect, the Department of Health and Human Services is forcing a Health Insurer to publicly justify a 12% Premium increase on 5,000 people who are employed by small businesses in Pennsylvania.  Previously, Health and Human Services reviewed the same insurer's 11% increase in Montana and determined that there, the increase was justifiable.  Now, the affected Health Insurer is required by law to publicly justify its Premium increase in Pennsylvania within 10 days.  See Noam N. Levey, "Obama Administration Calls on Health Insurer to Reduce Rate Hike / Using a Tool in the New Healthcare Law For the First Time, Officials Call the 12% Increase 'Unreasonable'" (Los Angeles Times Online at latimes.com, Tuesday, November 22, 2011).

    The new Federal Healthcare Law does not give the Federal Government power to actually roll back Health Insurance Premium increases.  It gives the Federal Government the new power to force affected Health Insurance Companies to publicly justify why they want the increases.  See id.  Perhaps sunlight is just what they need.

   The author is Co-Chair of the Health, Life and Disability Insurance Subcommittee of the American Bar Association's Insurance Coverage Litigation Committee.

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Collapsing Ethanol Production: No Business Interruption Found, New Collapse Trial.

     KAAPA Ethanol owned and managed an ethanol production plant.  KAAPA bought an "All Risk" Property Insurance Policy from Affiliated FM Insurance Company.

   Right after ethanol production began, the KAAPA plant stopped producing ethanol.  "[S]torage tanks began to lean, their foundations began showing visible signs of distress, and their supporting concrete walls sunk into the ground."  KAAPA Ethanol, LLC v. Affiliated FM Insurance Co., 2011 WL 5217207 *1 (8th Cir., Opinion Filed November 3, 2011), Download KAAPA Ethanol, LLC v. Affiliated FM Insurance Co. (8th Cir. Case Nos. 10.1929, 10.2071, Opinion Filed Nov. 3, 2011) PUBLIC ACCESS. KAAPA claimed Insurance Coverage including Business Interruption Coverage.  Affiliated denied the entire claim, "citing the faulty workmanship and settling exclusions."  Id. at *2.

   At Trial, a Jury awarded KAAPA $4 Million for its repair costs and other claimed losses, but gave KAAPA a zero on the Business Interruption Claim.  Id. at *1.

   Both KAAPA and Affiliated appealed to the Eighth Circuit Court of Appeals.  The Federal Appellate Court addressed only "collapse" issues of Insurance Coverage under All Risks Property Insurance Policies governed by Nebraska law.

   The District Judge instructed the Nebraska Insurance Coverage Jury in that case as follows:

   16. The insurance policy provides coverage for loss or damage caused by collapse. “Collapse” means substantial impairment of the structural integrity of a building or any part of a building. A structure or part of a structure does not need to fall down or be in imminent danger of falling down in order for it to have “collapsed,” nor do you need to find that the structure was either abandoned or taken out of use.

Id. at *2.  [Emphasis added.]  Affiliated objected to the italicized sentence in the Trial Court's Jury Instruction 16.  Affiliated argued that this was not a correct statement of Nebraska law on the subject of when a covered collapse takes place.   The appellate court agreed that this Jury Instruction was erroneous.  Further, the appellate court held that the Trial Court's error "prejudiced Affiliated's defense of this critical coverage issue; therefore, a new trial is necessary."  Id. at *4.

   According to the Eighth Circuit panel in this case, Nebraska already follows the majority view that a covered "collapse" under an All Risks Property Insurance Policy requires "material impairment."  Id.  Noting that collapse coverage has appeared in First-Party Insurance Policies for more than half a century, Courts have split over whether collapse coverages should include an "imminence" requirement.  The Courts that impose an "imminence" requirement on collapse coverage hold that "that requirement 'is consistent with the policy language and the reasonable expectations of the insured' and 'avoids both the absurdity of requiring an insured to wait for a seriously damaged building to fall and the improper extension of coverage' that would convert the policy 'into a maintenance agreement.'”   Id. at *5, quoting a California Court and thereafter citing to cases decided in New Jersey, the Ninth Circuit, the Third Circuit, and Delaware.

   In KAAPA Ethanol, a diversity case, the Eighth Circuit predicted that the Nebraska Supreme Court "would adopt some sort of imminence requirement in applying the material impairment standard" to determine whether there was a covered "collapse" under All Risks Property Insurance Policies.  Accordingly, the Appellate Court reversed and remanded for a New Trial on Collapse Coverage Issues in that case.  Id. at *6.

   PACER, the Online Docket of the Federal Courts, reflects that both a Motion for Rehearing and a Motion to Certify Question of State Law have been filed and are pending since this decision was entered.

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Reconsideration Motion Okay When Reasonable Expectations Doctrine Was Arguably Misapplied.

   In Dare Investments, LLC v. Chicago Title Insurance Co., 2011 WL 5513196 (D.N.J. November 10, 2011) Download Dare Investments, LLC v. Chicago Title Insurance Co. (D.N.J. Case No. 10.6088, Order Filed November 10, 2011) PUBLIC ACCESS, STATED NOT FOR PUBLICATION Download And Opinion Filed of even date (November 10, 2011) ALSO PUBLIC ACCESS, the Federal Court held that a Motion for Reconsideration was correctly filed and argued, because it was based on an arguable misapplication of law by the Court the first time.

   The legal doctrine applied in that case is the Doctrine of Reasonable Expectations for Insurance Coverage in New Jersey.

   The Federal Court in that case also held, however, that it was right the first time.  The Motion for Reconsideration was denied.

 

   The author will co-present "Disasters in Insurance:  The Sequel" on Friday, November 18, 2011 live from Noon to 1:00 PM ET via the West Legal Education Center website.  Thereafter the Webinar will be available on demand, 24/7, on the website.  Here is a handy link to the prequel Webinar broadcast live on October 21, 2011:  http://westlegaledcenter.com/program_guide/course_detail.jsf?courseId=41335829

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Claim Adjuster's Individual Liability: Alleged Claim Handling Misrepresentations Prevent Remand.

   Claims adjusters employed by Insurance Companies in Florida have always been like everybody else in that they are "susceptible to direct and individual liability for an intentional tort, including a fraud."  Leonhardt v. GEICO Casualty Co., 2011 WL 5359840 *2 (M.D. Fla. October 28, 2011), Download Leonhardt v. GEICO Casualty Co. (M.D. Fla. October 28, 2011) PUBLIC ACCESS.

   However, in that case the Federal District Judge held that joinder of a Florida claims adjuster in a Bad Faith case filed against the adjuster and the Insurance Company she works for, totally defeated Federal diversity jurisdiction.

   The case involves alleged Bad Faith claims handling.  The Plaintiff alleged that the individual claims adjuster intentionally misrepresented "the amount of the available insurance coverage for a covered claim against the insured," among other things.  Id. at *3.  These claims defeated diversity of citizenship jurisdiction in Federal District Court and required remand to the Florida State Court for determination of the entire Bad Faith case.

   To put the holding in this case another way, the Federal Court decided that the Insurance Company did not demonstrate "clearly and convincingly that [the Plaintiff] cannot possibly succeed" on his claims against the adjuster.  Id. at *1.

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