Insurance Claims and Bad Faith Law Blog

Federal Taxpayer Takeover Looms of Fiduciary Fatalities Fannie and Freddie.

    Unknown, unnamed "officials" are critical of executives in charge of Freddie Mac and Fannie Mae.  It is reported on the weekend this post is written, that Federal Taxpayers will soon be paying for a Federal takeover of the two "mortgage giants".  Stephen Labaton and Andrew Ross Sorkin, "U.S. Rescue Seen at Hand for Two Mortgage Giants" p. A1, col. 5 (New York Times Nat'l Ed., Saturday, September 2, 2008).

    Reportedly, as part of the Federal Taxpayer Takeover the executives and the boards of both Freddie Mac and Fannie Mae will leave.  It appears that they will be leaving with no noticeable effect on their own financial portfolios.

    Investors, however, will not be so lucky.  Shareholders of the quasi-governmental corporations "would be virtually wiped out".  Id.

    Although the linked newspaper report does not link the anonymous officials' "criticism" with the executives' compensation, it does repeat previous reports of "huge compensation packages" for certain executives of Fannie Mae and Freddie Mac who were reportedly in charge of the companies' operations which have led to the Federal Taxpayer Takeover.  In particular, the CEO of Freddie Mac allegedly was paid over $38,000,000.00 since 2003, id., which is some $7.6 Million per year on average for each of the past 5 years.

    Rather than words of criticism in private, perhaps some examination could be made of the question of recovering some of the executive compensation for the shareholders -- or not say anything at all if nothing public is to be done.

Please Read The Disclaimer.

"Bad Faith Breach" of Homeowner's Policy Requires Coverage.

     In a recent decision under Oklahoma law, a Federal Court has joined the majority of Courts that has addressed the issue, and has held that Coverage is a prerequisite to recovery on a Bad Faith claim under a Homeowner's Insurance Policy:

Because the Court has found that the Stanleys' [the Policyholders'] claimed losses are excluded by their insurance policy and that Farmers, consequently, is not liable under the insurance policy, the Court finds that the Stanleys cannot recover under their bad faith breach of contract claim.

Stanley_v. Farmers Insurance Co. (W.D. Okla. Case No. CIV.05.622.M, Opinion Filed Oct. 25, 2006).pdf.  The same holding was reached under a Homeowner's Insurance Policy under California law, that where there is no breach of the Insurance Contract, there is no Bad Faith Claim, in the recent case of Loughney_v. Allstate Ins. Co. (S.D. Cal. Case No. 06CV1020.LAB, Opinion Filed Oct. 31, 2006).pdf.   Parenthetically, the 'rule' requiring Coverage before there can be a claim for Bad Faith applies to all kinds of Insurance Policies, and not just Homeowner's Policies, of course.  See Boardwalk_Condominium_Ass'n_v. Travelers Indem. Co. (S.D. Cal. Case No. 03CV505, Opinion Filed July 3, 2007).pdf, in which the Insurance Policies at issue were "'all-risk' business owners property policies" and there was a Bad Faith Claim:  "As a threshold matter, the insured must prove that there is coverage under the policy." 

    There is room for argument that perhaps sometimes, at least, even where Insurance Coverage does not exist, a Claim may exist for violation of one or more duties of Good Faith and Fair Dealing.  Not in Oklahoma in the above Stanley case, and not in California in the above Loughney and Boardwalk Condominium cases, however, nor in the great majority of cases in which Courts have to date addressed similar facts and contentions.

                                                             Please Read The Disclaimer.

Good Faith Facts Can Make Law.

     The Federal Court in the Eastern District of Kentucky was faced with a question that, as of January 12, 2006, no Court in Kentucky had answered.  Lawyers call this "a case of first impression".  The author was retained as an Expert Witness in an Insurance case in Florida just like this one.

     The question in the Kentucky case was whether there was Good Faith or Bad Faith by a Liability Insurance Company in its settlement with more than one person who made a liability claim against the Policyholder.  In the process of settling these claims, the Insurance Company exhausted or used up the Policyholder's complete policy limits -- and triggered a policy provision that the Insurance Company no longer had to defend once the policy limits are exhausted.  The answer to this question will determine Good Faith or Bad Faith, and at the same time the answer in a case like this also determines whether the Insurance Company has to defend the next claim from the same automobile accident in this particular situation.

     In January, 2006, the Federal Court said that there was not enough evidence in the record to determine whether the Insurance Company had settled in Good Faith or in Bad Faith:  Safeco_Insurance_Co. v. Ritz (E.D. Ky., Opinion Filed Jan. 12, 2006).pdf.  When there was enough evidence to consider the Good Faith or Bad Faith question, Kentucky law as announced by the Federal Judge for cases involving more than one claimant, would require various facts to be considered:

     Among the 'various factors' to be considered in determining the existence of bad faith are (1) whether the settlement offers of all the claimants totaled the policy limits or less, (2) whether the insured demanded that the insurer settle with all claimants, and (3) the probability that the claimants excluded from the settlement would obtain a jury verdict or verdicts against the insured which would exceed the policy limits.

Slipsheet Opinion at page 12.  The Supreme court of Kentucky makes it clear that these are not going to be the only factors to consider, the Federal Judge hastened to add.  Among other things, Kentucky Courts in such cases will "likely look to courts in other jurisdictions" as the Federal Judge himself did in this case.

     In December of the same year, the Federal Judge held that there was no Bad Faith, granted the Insurance Company's motion for summary judgment on the record by that time, and also held that the Insurance Company in that case did not have a duty to defend the next claim, based on the same automobile accident, and by a claimant with whom the Insurance Company had not settled:  Safeco_Insurance_Co. v. Ritz (E.D. Ky., Opinion Filed Dec. 5, 2006).pdf.

     Many legal results depend on the actual facts, and this is one of them.

                                             Please Read The Disclaimer.

 

No Personal Injury Coverage, No Defense and No Bad Faith.

    An insured Construction Company filed suit to recover its mechanics' lien of $4,938.10.  The money was allegedly owed by Mr. Robert Etchison under a contract to install a paved driveway and two drainage pipes on Mr. Etchison's property.  When the Construction Company sued him, Mr. Etchison counterclaimed in five counts.

    The Construction Company's liability carrier, Westfield Insurance Company, denied all Insurance Coverage under the liability policy to the Construction Company including any defense to Mr. Etchison's counterclaim.  The Coverage issue was decided in a case filed in Federal Court:  Whether any of the counts in the Counterclaim arguably triggered Personal Injury Coverage under that liability policy.  At the end of 27 pages, the Federal Court wrote that there is no Insurance Coverage under Westfield's policy.  Download Etchison_v. Westfield Insurance Co. (N.D.W. Va. Case Nos. 5.05CV132, 5.05CV99 Opinion Filed September 29, 2006).pdf.

    The next holding took only from the middle of page 27 to the top of page 29, because it followed from the holding of No Insurance Coverage.  There, the Federal Court also granted Westfield's Motion for Summary Judgment on Mr. Etchison's claims against Westfield, the Construction Company's Liability Carrier -- including Mr. Etchison's requests for Bad Faith Damages "based on a third-party bad faith claim".  (Page 2.)

    This is the latest example of a Court declaring first that there is no Insurance Coverage available, and then declaring in a much shorter space and time after that, that as a result there cannot be any Claim for Bad Faith Damages.  The holding in this case is once again "No Coverage, No Bad Faith".

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE IN THAT JURISDICTION, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION. 

Sever Bad Faith Claims and Await Coverage Outcome

    In Texas recently a trial judge severed and abated a Policyholder's Bad Faith claims.  The Policyholder, Mr. Jonathan Miller, claimed Uninsured Motorist Coverage under his State Farm policy.  He also claimed extracontractual or Bad Faith damages.  Mr. Miller alleged that "State Farm engaged in certain unfair settlement practices that are prohibited by Texas Insurance Code section 541.060."

    The Court of Appeals of Texas for the 12th District in Tyler, Texas affirmed the trial court's order.  The appellate court wrote:  "A breach of insurance contract claim, including UIM benefits, is separate and distinct from a bad faith claim."  The reason they are separate and distinct claims is that Mr. Miller needs to prevail on his "contract claim" before he can pursue "a bad faith claim," said the appellate court.  Where there is no Insurance Coverage, there is no Bad Faith claim in In re Jonathan Miller (Tex. Ct. App. Case No. 12-06-00195-CV Opinion Filed September 29, 2006) Public Access Site.   This case looks like it will be published in S.W.3d and it can be found in 2006 WL 2789255, for both of which a subscription is required.

    Much as Coverage is required before there can be Bad Faith in Mr. Miller's case.

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY IN AND FAMILIAR WITH THE PARTICULAR JURISDICTION AND ITS LAWS, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.

   

Surface Water is Not Excluded Flood Water ....

                                            BUT IT is AN EXCLUDED CONCURRENT CAUSE.

   

    A recent long opinion by a Federal Judge in Pennsylvania reached twin conclusions concerning asserted CatClaim damages.  First, the Federal Judge reasoned that there was no Insurance Coverage.  Second, and as a direct result, the Federal Court held that no Bad Faith claim could survive upon which relief could be granted (although fraud is a possibility).  Subscription-required citations are given below, and here is the name of the case and public access to this very long decision:  Download T.H.E. Insurance Co. v. Charles Boyer Children's Trust d.b.a Boyer's Westwood Lanes (M.D. Pa. Case No. 3.CV-04-1652 Opinion Filed October 11, 2006)..pdf

    The insurance company filed a Declaratory Judgment action.  It wanted the Court to declare that the First-Party Insurance Coverage of its Commercial Lines Insurance Policy does not apply to the loss claimed by its Policyholder, a bowling alley.  The policy contains an Exclusion for damage caused by "water" including "loss or damage caused directly or indirectly" by, among other things, "surface water".   The policy also contains a provision that such loss or damage is excluded regardless of any other cause "that contributes concurrently or in any sequence to the loss."

     The Policyholder estimates $2,000,000.00 in damage.  The Federal Judge wrote that it is "undisputable" that the claimed damage was caused in whole or in part by water that flowed into the bowling alley to a depth of over 3 feet.  It "is indisputable" that water accumulated outside an eastern door of the bowling alley that "was derived from torrential rains", the Federal Judge further wrote.  There is also "no dispute" that the water in question rose over 4 feet outside that eastern door.  The door collapsed, and the claimed damage resulted.

    Although  the Federal  Court promptly determined that the damage-causing event was not subject to the same policy's Flood Exclusion, the Court also addressed the policy's Exclusion for damage caused by "surface water".  Surface waters are defined by the Pennsylvania Courts in much the same way as Courts in other States have defined that term.  It is judicially defined to mean, in basic terms and as analyzed by the Federal Judge in this case, "derived from falling rain or melting snow," and it is  "diffused over the surface of the ground," and surface water does not follow a definite course as would be the case in streams, lakes, and ponds.

    "It is thus evident that the damage to the bowling alley was caused by 'surface water,' whether it came from the parking lot or from the embankment south of the building.  Courts have consistently held that rainfall that collects outside a building and subsequently flows into that building is 'surface water' for purposes of the surface water exclusion."  Thus held the Federal Judge on these facts, concluding that there was simply no Insurance Coverage.  The Court granted the First-Party Insurance Company's motion for summary judgment and denied the Policyholder's motion for summary judgment in this case accordingly.

    Since there was no Insurance Coverage, the Federal Court resolved the Policyholder's First-Party Bad Faith claim against the Policyholder and in favor of the Insurer in a footnote, leaving open the posssibility of a claim for fraud which the Policyholder had also alleged:  "While this ruling necessarily means that Defendant [the bowling alley-Policyholder] cannot recover on its contractual and statutory bad faith counterclaim, it may not necessarily foreclose Defendant's counterclaim for fraud."  Footnote 10 of the Federal Court's Opinion.

    The Court is scheduling a telephone status conference for Thursday, October 26, 2006.  Perhaps the attorneys of record in that case for the prevailing party will advise us of the outcome after the telephone status conference, which we would all appreciate.  Here are the subscription-required citations for this new decision:  T.H.E. Insurance Co. v. Charles Boyer Children's Trust d.b.a. Boyer's Westwood Lanes, ___ F. Supp. 2d ___, 2006 WL 2923223 (M.D. Pa. Case No. 3:CV-04-1652 Opinion Filed October 11, 2006).

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY IN AND FAMILIAR WITH THE PARTICULAR JURISDICTION AND ITS LAWS, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.

   

Suspended Judge Charged $580,000.00, Insurer Pays Nothing.

    in a recent Federal Case involving Ohio Insurance Law, it is again held that there is no Bad Faith where there is no Insurance Coverage:  O'Neill v. Kemper Insurance Cos., 2006 WL 2795186 (S.D. Ohio Case No. 2:04-CV-1135 Opinion Filed September 27, 2006)(subscription required),  Download oneill_v. Kemper Insurance Cos. (S.D. Ohio Sept. 27, 2006).pdf.  Today a Notice of Appeal is filed to the Sixth Circuit.   

    That is the long and the short of this case, right there.  Stop if you want the short version.  However, the longer version of this case up till the filing of a Notice of Appeal if you will, involves allegations of judicial misconduct, attorney fee and cost bills adding up to more than half-a-million dollars, agency findings by the Board on Grievances and Discipline, an Ohio Supreme Court appeal and, in the end, summary judgment for the Judge's insurance company in her Bad Faith case -- after summary judgment/dismissal of her claims for Insurance Coverage.

    Judge Deborah P. O'Neill sued Kemper and Lumbermen's.  She holds a  policy that reimburses her for defending against certain "allegations". Judge O'Neill was accused of 6 counts including in them 55 total "instances of alleged misconduct" while she was an Ohio Common Pleas Judge.  She successfully defended against 2 of the counts before the Ohio Board of Commissioners on Grievances and Discipline.  The Supreme Court of Ohio affirmed the Board's findings "and suspended [her] license to practice law for two years with one year stayed, on certain conditions."

    By the conclusion of these results of her defense, Judge O'Neill was charged $175.00 an hour for a total "in excess of $580,000.00."  In footnote 2, the Federal Judge carefully pointed out the high respect afforded to Judge O'Neill's lawyer.  In the same footnote, the Federal Judge also pointed out that the reasonableness of the charge was not an issue in the case.

     Rather, the Federal case began and ended, really, with Insurance Coverage or rather the lack of it, according to the Federal Court.   Judge O'Neill's insurance policy provided that when there were otherwise covered allegations against her, the insruance company would reimburse her defense fees and costs "only" when the "allegations ... are dismissed or discontinued without a finding of fault or guilt on your part." 

    Since 2 of the 6 charges were successfully defended, and 4 of the 6 resulted in findings affirmed by the Ohio Supreme Court, the Federal District Judge held that there was no Insurance Coverage under the insurance policy.  The claim of Bad Faith failed as a result of the holding of No Insurance Coverage.  The claim of Bad Faith, the Federal Court "finds," therefore had "no merit".  Parenthetically, the Bad Faith Law of Ohio is concisely summarized in footnote 6 of the Federal Court's Opinion.

    Regardless of where the Bad Faith Law of Ohio takes Ohio, and us, this case is another in a growing list of decisions in which claims of Bad Faith are defeated when Courts find NO Insurance Coverage.   If the Notice of Appeal filed in this particular case today results in further rulings in this case, we may see if these holdings remain unchanged.

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY IN AND FAMILIAR WITH THE PARTICULAR JURISDICTION AND ITS LAWS, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.

No Coverage, No Statutory Damages.

                TEXAS' OLD ARTICLE 21.55 DOES NOT GIVE DAMAGES FOR

                                    NON-COVERED CLAIMS.

    Illuminating the question of whether Bad Faith Claims require Insurance Coverage, a U.S. District Court in Texas says that Old Article 21.55 of the Texas Insurance Code just does not allow damages if the Insurance Claim involved is not Covered by the policy.  Joseph and Joyce Gordon v. Allstate Texas Lloyd's, 2006 WL 2827233 (S.D. Tex. Case No. CIV A H-04-1061, Opinion Filed Sept. 27, 2006)(subscription required), and thanks to Texas Attorney Christopher T. Colby, Esquire:  Try accessing this pdf copy of the publicly released opinion:  Download gordon_opinion_and_order_9_27_06.pdf.

    In the language of the Texas Statute, now repealed and renumbered effective April, 2005, damages are to be awarded when an insurer's liability arises "pursuant to a policy of insurance."   The statute applied to Mr. and Mrs. Gordon's lawsuit which was filed in 2004.  They claimed damages from mold, which they contended should be covered by their Homeowner's Policy.

     Thus, in Texas, "No Coverage, No Article 21.55 Bad Faith Damages."  Even if Old Article 21.55 is now repealed.

    A Closing Note:  The District  Court did not identify the newly renumbered provisions of Old Article 21.55, undoubtedly because Old Article 21.55 was the concern of the District Court in the Gordon case and not the statutory renumbering.  Former Texas Insurance Code Article 21.55 §§ 1-8, the Texas Overdue Payments Statute, now appears to be renumbered as Tex. Ins. Code Ann. §§ 542.051-.061.

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY IN AND FAMILIAR WITH THE PARTICULAR JURISDICTION AND ITS LAWS, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.