Insurance Claims and Bad Faith Law Blog

Will the Law Identify Ratings Analysts as Fiduciaries?

     Many analysts may have been late to hear the alarm bells set off by the subprime crisis, but some analysts were not:  See this article by Tomoeh Murakami Tse, "Analysts Late to the Alarm/Fallout From Subprime Crisis Casts Scrutiny on Ratings" (washingtonpost.com, Thursday, December 13, 2007).   Will the law identify them all or any of them as Fiduciaries who ever owe duties of Good Faith and Fair Dealing, breach of which exposes Fiduciaries to liability for the Damages they allegedly thereby caused?

     On a perhaps separate, perhaps related note, the current financial crisis does not seem to be limited to subprime mortgages.  It seems to be a larger crisis in extending credit and making loans in a great number of situations apart from mortgages.  These financial situations share a common core of new exhibitions of willful blindness caused by greed.

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Florida Committee Proposes Jury Instruction Dealing With Med Mal Bad Faith.

     The Florida Supreme Court Committee on Standard Jury Instructions proposed a new jury instruction to use in cases involving a Florida Statute with questionable constitutionality:  Section 766.1185(2).  It is a statute which on its face applies only to Insurer Bad Faith/Good Faith in Medical Malpractice situations.  The question of constitutionality and recent revisions to Florida Standard Jury Instructions on Insurer Bad Faith are analyzed in Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 3:2 & n.24 (2007 Supplement to Second Edition, published by West Publishing Co.), subscription required.

     Here is a link to the proposed jury instruction as it was first published in the October 15, 2007 edition of the Florida Bar News.   Online searching as of December 26, 2007 reveals no changes to it, as yet:  "Notice/Proposed Instruction Dealing With Med Mal Bad Faith".

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Other Bad Faith: Discovery (Not in New York Federal Case).

     Bad Faith in discovery can lead to striking a pleading or entering a default judgment as a sanction.  Kenneth_v. Nationwide Mut. Fire Insurance Co. (W.D.N.Y. Case No. 03CV521F, Opinion Filed Nov. 13, 2007).pdf at page 26 of the linked official report from the Court's public web site; also available by subscription as 2007 WL 3533887 at page *13.  "Nevertheless, the severe sanction of dismissal of a lawsuit under Rule 37 should be imposed only under extreme circumstances, [citation omitted], and not unless the failure to comply with a pretrial production order results from willfulness, bad faith, or fault of the sanctioned party, [citation again omitted].  Open and unequivocal defiance of court ordered discovery is, notwithstanding, sufficient to support a finding of bad faith or willful misconduct supporting the severe sanction of dismissal of a pleading."  Id. at 27; 2007 WL 3533887 at *13.

     In this recent decision, the Federal Court found that the record did not warrant "the extreme sanction of dismissing the Complaint".  Id. at 28; 2007 WL 353887 at *14.  The Federal Court went on, however, to address the Defendant Insurance Company's particularized Motion to Compel specifically further directed to 8 Interrogatories and granted the Motion as to 7 of the 8 Interrogatories.

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Corporate Directors' Fiduciary Duties in a Subprime Market.

     The Treasurer of the State of North Carolina is a man named Richard H. Moore.  He reportedly questions the extremely large paychecks that corporate boards of directors agreed to based mainly if not only on short-term profits.  Here  is a link to his November 28, 2007 Press Release, "Moore Speaks Out on Shareholder Rights".   More recently, Mr. Moore is quoted as taking a very dark view of directors hiring executives by giving lucrative employment contracts without what he calls "claw-back provisions."  Mr. Moore is quoted in an influential newspaper report, linked below, as saying:  "That to me is a per se breach of fiduciary duty."

     Further, in the same influential newspaper report (occasioned by a majority vote of the current Securities and Exchange Commission which gutted the ability of owners of corporations, i.e., shareholders, to change directors -- rather than sue them) in which Mr. Moore is quoted, these additional points connected with the subprime market markdown are made:   The widely reported huge losses in recent months of big financial outfits are themselves an irrefutable sign that something is very, very wrong inside the boards of directors of these corporations.  One of three things must be true in this case:  (1) These directors knew that their managers were taking certain risks, and approved; (2) these directors did not know anything about the risks that their managers were taking, or (3) these directors were told of the risks and could not stop their managers from taking such risks.  Which if any of these three is a good thing?  See Gretchen Morgenson, "S.E.C. Sends Investors to the Children's Table" p. C1, col. 2 (Sunday Business, New York Times Nat'l Ed., December 2, 2007).

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