Insurance Claims And Issues

Securitization and the "New" Insurance, No Assurance.

     "Securitization" includes, in basic terms, bundling securities and selling them.  Previous posts in this space have addressed one of those "securitization" vehicles, collateralized debt obligations, which are not regulated as "Insurance," and their virtually identical resemblance to regulated Credit Insurance.

    Other features of "securitization" besides the avoidance of regulation, include that borrowers and lenders are not likely to know much about the other, even their identity in at least some cases.   "[T]oday the holder of the note securing the property is a faceless investor represented by a trustee, like the Bank of New York."

     Further, loan servicing companies stand in the middle between lender and borrower.  It is the job of a loan servicing company to obtain for the lender all the money from the borrower that can be obtained.  "And because the foreclosure process can generate lucrative fees, servicers have an incentive to drag out the process, experts say."

     In particular, plaintiffs attempting to foreclose on residential housing are at a loss in many cases to present the actual note given by the borrower as evidence that the plaintiff owns the "securitized" debt or otherwise has the right to foreclose on the security, i.e., the borrower's home, in the event of nonpayment of the loan.  This evidentiary disability is a growing disadvantage as more Judges require evidence of authority to foreclose.  A "consumer lawyer at Jacksonville Area Legal Aid in Florida" is quoted in this regard in Gretchen Morgenson, "How One Borrower Beat the Foreclosure Machine" p. 1, col. 2 "Sunday Business" Section (New York Times Nat'l Ed., Sunday, July 27, 2008).  The consumer lawyer points out that this is an issue of whether the plaintiff has standing to sue, and the answer to that question may well determine whether the same plaintiff has standing to settle.

Please Read The Disclaimer.

The Expense of Medical Malpractice: Insurance, Lawsuits, and Pain.

     Reportedly, South Florida has the most expensive Medical Malpractice Insurance Premiums in the nation.  Many consequences or effects are explored in companion articles by Bob LaMendola, "South Florida Malpractice Victims Have Fewer Options" (South Florida Sun-Sentinel.com, Sunday, July 27, 2008) and  Bob LaMendola, "Uninsured Doctors on the Rise in South Florida" (South Florida Sun-Sentinel.com, Sunday, July 27, 2008).  This fact contributes to a decrease in the number of lawsuits filed in Florida over Medical Malpractice, and Judgments in them.  Other factors contribute as well. The linked newspaper reports mention several events making contributions to those outcomes, including these:

     1.  High Medical Malpractice Insurance Premiums mean that more doctors elect not to pay for such Insurance, or to pay for a lesser limit of Coverage. 

     2.  Florida law provides now that if one Defendant cannot pay the entire Judgment then there is much less of a chance of prevailing on a "joint and several liability" theory to try to force other Defendants to pay the entire Judgment.

    3.  The Florida Supreme Court held recently that Hospitals "cannot be sued for failing to make doctors carry insurance." 

Here  is a chart provided by the South Florida Sun-Sentinel to illustrate "South Florida Medical Malpractice Insurance Premiums".

Please Read The Disclaimer.

Thanks for the Insurance and Your Service, Citizen Douglas!

     Thursday, July 31, 2008 is the last day that Mr. Bruce Douglas will serve as the Chair of Citizens Property Insurance Corporation.  Reportedly, Citizens is the largest Homeowner's Insurance Company in the United States that operates as an arm of State Government, and in this case, the State is Florida.

     Citizens also reportedly has 1,200,000 or 1.2 Million Policyholders.  In the 6 years that Mr. Bruce Douglas has been the Citzens Chair, "its exposure to storm damage" has more than doubled, "to $425-billion, but reserves have been rising, thanks to no recent storms."  Mr. Douglas is virtually everyone's dictionary definition of a fine human being.  His public service has been performed with honor.  Consistent peformance of his duties with honor, and a good sense of humor rarely found in those in modern public life, are both on display in this interview by Tom Zucco, "He Leaves Citizens More Stable" (St. Petersburg Times Online, Friday, July 25, 2008).

     Thank you, Bruce Douglas.

Please Read The Disclaimer.

Policy Limits Concept Continues for Deposit Insurance ... or Not?

     Put another way, should the Federal Deposit Insurance Corporation face liability without limit?  Since the FDIC is funded by Taxpayer money, that question really becomes, should Taxpayers face liability without limit to protect everyone's savings deposits?  These and similar questions are explored by Tom Petruno in "Market Beat/Deposit Insurance Limits Make Sense--At Least in Principle" (Los Angeles Times Online, Saturday, July 26, 2008).

     Almost, it seems, to address an issue raised in another post in this space, namely, that the "authority" of recent actions taken by the FDIC did not seem entirely clear, it is reported in the linked newspaper column that since 1991, a Federal Statute has required the FDIC to address each bank failure "in the least costly manner to the agency's insurance fund".  Reportedly, the FDIC's preferred solution to bank failures is to "merge" a failing bank with a solvent bank, which is the solution adopted by the FDIC in the post here involving reports regarding, for example, First National Bank Holding Co. of Arizona and Mutual of Omaha Bank, respectively.  See id.

     Since September, 2007, the FDIC has taken control of eight banks, including the now well-known IndyMac which presented the FDIC with what is reported to be the second-largest bank failure in the history of the United States.  Id.

     However, if one theory behind limits on Deposit Insurance is as suggested in this newspaper column, to "force individuals to be disciplined about where they put their cash," then there is a problem.  Most people simply do not know how to judge which banks are solvent and which are in danger of imminent or future collapse -- until there is a bank failure or a threat of one.

     The linked newspaper column includes anecdotal evidence from Britian and Japan, where the governments reportedly issued a "blanket deposit guarantee for all bank customers" or "unlimited insurance coverage" up to the total amount of each deposit.  The exact workings of such plans either in Britain or in Japan are not discussed in the column.  Whether such plans would have any chance of working in the United States may well depend on future conditions.

Please Read The Disclaimer.

Federal Officials Take Over Banks Rather Than Pay Insurance Claims.

     The Federal Deposit Insurance Company has exercised power not to pay depositors insurance claims, by instead taking over the banks where the depositers had their money.  The banks will now be run by another bank entirely, apparently as a gift from the FDIC.  The authority if any for the actions taken by the FDIC in these cases is not entirely clear.  The actions themselves are reported in a story copyrighted by the Associated Press, by Brendan Riley, "FDIC Takes Over 2 More Banks, Closing 28 Branches" (washingtonpost.com, Saturday, July 26, 2008)., which was substituted with this article on the washingtonpost.com site, written by Amanda Lee Myers, Associated Press, "No Angry Lines of Customers After Bank Takeover" (washingtonpost.com, Sunday, July 27, 2008).

Please Read The Disclaimer.

Catastrophe Claims Strip Homeowner's Insurance Coverage, Lift Premiums.

     Since about the time of Hurricane Andrew in 1992, Homeowner's Insurance Policies and other kinds of Property Insurance Policies have been adversely affected by Catastrophe Claims.  Coverage provisions have been narrowed and new Exclusions have been added.  A director of consumer services at Florida's Department of Financial Services is quoted on these issues, for example, by Jeff Plungis, "Homeowners May be Twice Burned as Insurers Cap Policy Coverage" (Bloomberg.com, Wed., July 16, 2008).  "Policies are written annually so insurers can add exclusions."  Id.  (This last observation makes sense, but it applies to virtually all Insurance Policies.)

     One transformation of Coverage has been the nearly uniform refusal to provide "guaranteed replacement cost" Coverage, with Property Insurance Companies instead offering Coverage with a cap called "extended replacement cost" which by any name does not cover the actual cost of replacing a home totally destroyed by a Catastrophe.  These developments over the last 15+ years, which have been chronicled in many places including in previous posts here, for example, lead to the newspaper article's wise advice that "people should review their homeowners' coverage to make sure dollar amounts keep pace with currrent construction expenses."  Id.

Please Read The Disclaimer.

Insurers Cry "Catastrophe" From Tornado Claims: Allstate, Travelers Claim Hits.

     Travelers Companies, reportedly the second largest Commercial Insurance Company in the United States, recorded its third decline in Quarterly profits in a row due to "the record number of tornadoes in the second quarter."  Andrew Frye, "Travelers Net Income Drops 25 Percent on Catastrophes (Update 5)" (Bloomberg.com, Wed., July 23, 2008).  It is reported in this article that 2Q 2008 provided the most tornadoes in the second quarter of the fiscal year since the National Weather Service started counting in 1950.

     It is also reported in the article, although not as a cause of The Travelers' reported decline in profits, that the Commercial Insurance Industry has competitively cut Premiums to gain large corporate Policyholders.  The Council of Insurance Agents and Brokers is credited in the article with a report of its own that Premium Rates for the largest Commercial Insurance accounts fell 16% in 2Q 2008, and overall, Commercial Insurance Premiums were down 13% in the quarter.

    Allstate Corporation also reported that its falling profit continued a streak, in Allstate's case for the fourth quarter in a row.  Allstate astonishingly reported that compared to 2Q 2007 one year ago, its net income fell 98% in 2Q 2008, a result it blamed on tornadoes.  In addition, Allstate pointed to its investment losses due to writedowns resulting from the failing economy and the credit crisis, i.e., the downgraded collateral it took back to secure its investments.  Erik Holm, "Allstate Profit Falls on Tornadoes, Investment Loss (Update 3)" (Bloomberg.com, Wed., July 23, 2008).

Please Read The Disclaimer.  

    

Update on "Post-Claims Underwriting" vs. "Rescission" by Health Insurance Companies.

     On Tuesday, July 22, 2008 the Governor of California signed a bill into law that prohibits Health Insurance Companies from awarding bonuses to their employees based on canceling or rescinding a Policyholder's-Patient's Health Insurance Coverage.  Lisa Girion, "Schwarzenegger Signs Ban on Health Insurers' Rescission Reward Practice" (Los Angeles Times Online, Wed., July 23, 2008).

Please Read The Disclaimer.

"Post-Claims Underwriting" or "Rescission": Feds, States, Cities Battle Health Insurers.

     The State of California's Department of Managed Health Care has reached an agreement with two of the larger Health Insurance Companies in California, Blue Cross and Blue Shield, to resolve complaints investigated by the Department about the Companies' alleged "post-claims underwriting" practices.  Lisa Girion, "California Fines Two Health Plans $13 Million" (Los Angeles Times Online, Friday, July 18, 2008).  By those practices the Health Insurance Companies allegedly attempted to rescind Health Insurance Policies for supposed misrepresentations made in the application at the beginning of the underwriting process, after the Policyholder made a claim for a lot of Health Insurance Benefits under the Policy.  The agreement includes these features:

     1.  Payment of a fine.  The two Health Insurance Companies together agreed to pay $13,000,000.00 or $13 Million in fines, $10 Million by Blue Cross and $3 Million by Blue Shield.

     2.  Payment of amounts which most lawyers would view as "consequential damages" or money for damages that are a consequence of the alleged unlawful actions.  No amount was reported, but instead a "process" was agreed to by which former Policyholders could "recover medical expenses they paid out of pocket after they were dropped as well as other damages, such as homes or businesses that were lost because unpaid medical debts ruined the former members' [i.e., Policyholders'] creditworthiness."

     3.  Offer of new policies.  Both Blue Cross and Blue Shield agreed to offer new policies to certain of their Policyholders whom they canceled since 2004.

     4.  Finally, both Companies agreed to write new application forms that would somehow be "easier for consumers to understand."

     The Director of the California Department of Managed Health Care is quoted in the article as saying that the fine is a record.  On the other hand, the Director of healthcare policy for "Consumer Watchdog" is also quoted in the article as saying that the agreement is "'obstructing justice'".

    In related developments, the Los Angeles City Attorney is pursuing his own previously filed lawsuit based on accusations of false advertising, unfair practices, and using intentionally misleading application forms, also reported by Lisa Girion, "Blue Shield Sued for Allegedly Lying About its Coverage" (Los Angeles Times Online, Thursday, July 17, 2008).  The president of the California Medical Association and the president-elect of the Los Angeles County Medical Association are both identified in this article as praising the efforts represented by this lawsuit against these alleged rescission practices directed at Health Insurance Policies.  On the other hand, a spokesperson for Blue Shield announced that it has 400,000 "individual policyholders," that Blue Shield has paid "nearly $4 billion in claims for those policyholders" since 2002, that Blue Shield's application forms "were reviewed and approved by two state regulators," and that its investigative and underwriting practices are in essence top notch, which he said, "'is why we have rescinded a fraction of 1% of individual and family policies.'"

     Not to  be outdone, perhaps, the United States Congress has reportedly scheduled hearings on the accusations that Health Insurance Companies engage in post-claims underwriting or rescission of certain Health Insurance Policies.  Avram Goldstein, "U.S. to Probe Health Plans That Cancel Sick Members (Update 3)" (Bloomberg.com, Thursday, July 17, 2008).  It is noteworthy that, according to this article, the Health Insurance Policies that are the alleged targets of rescission are only Health Insurance Policies issued to individual persons.

Please Read The Disclaimer.

Increasing Risk, Increasing Insurance Role.

    Current market conditions strongly reflect significant risk.  In this situation, Insurance Coverage Issues and Claims are inevitable.  They are coming.  They are coming under all sorts of Insurance Policies.  These Insurance Coverage Issues and Claims will in turn trigger many accusations that Insurance Companies and others acting in Fiduciary settings did not act in Good Faith and Deal Fairly.  In a climate like this one, these Issues and Claims are inevitable.  See generally Peter G. Gosselin, "In This Economy, Failure is an Option" (Los Angeles Times Online Sunday, July 20, 2008).

Please Read The Disclaimer.