Claims and Bad Faith Law Blog

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BREACHING CONTRACT BY IMPROPERLY DELAYING LOSS ADJUSTMENT: FLORIDA CONSEQUENTIAL DAMAGES.

In a case that “involves the snail-paced resolution of insurance claims for property damage caused by a hurricane in 2004,” a Florida appellate panel unanimously held that the policyholder could sue Citizens Property Insurance Corporation for consequential damages but not for bad faith. Manor House, LLC v. Citizens Prop. Ins. Corp., No. 5D17-2841, 2019 WL 2306107, at *1 (Fla. 5th DCA May 31, 2019) (Edwards, J., for a unanimous Court; opinion stated not final until released for publication in the permanent law reports).

In reaching this decision, the Florida appellate court acted with significance beyond its borders and even beyond Florida itself. Citizens is immune from “bad faith” in Florida. However, Citizens is not immune, this Court held, from consequential damages for breach of contract that require neither allegations nor proof of bad faith.

The policyholder owned apartment buildings that were damaged during Hurricane Frances in 2004. Citizens allegedly improperly adjusted the claim including unnecessary delay in processing it. The policyholder alleged that as a consequence of the property insurance carrier’s delay (i.e., by Citizens), the policyholder lost rental income that it would have received had its property insurance claim been adjusted properly and without unnecessary delays.

The trial judge held that Citizens is not liable for such consequential damages and entered partial summary judgment in favor of Citizens on that claim.

On appeal, the Fifth District panel reversed this holding. The appellate panel established the law of Florida beyond bad faith extracontractual damages. The panel unanimously held that when an insurance carrier breaches the insurance contract it must face exposure to extracontractual damages in this sense: The contract breach allegedly caused the consequential damages. No inquiry into bad faith or good faith is necessary in such a case.

As the appellate panel held in a well-reasoned opinion by Judge Edwards in this case:

    In granting summary judgment, the trial court denied Manor House the opportunity to prove whether the parties contemplated that Manor House, an apartment complex, would suffer consequential damages in the form of lost rental income if Citizens breached its contractual duties to timely adjust and pay covered damages, which in this case allegedly resulted in a significant delay in completing repairs so that units could once again be rented. We hold that the trial court erred in so ruling, and we reverse that partial summary judgment so that the parties may litigate all issues related to Manor House's claim of lost rent. It is undisputed that Citizens, a creature of statute, is immune from bad faith claims. See § 627.351(6)(s) 1, Fla. Stat. (2017). However, the consequential damages Manor House seeks are based squarely on breach of contract claims requiring no allegation or proof that Citizens acted in bad faith.

Manor House, LLC v. Citizens Prop. Ins. Corp., No. 5D17-2841, 2019 WL 2306107, at *2 (Fla. 5th DCA May 31, 2019).

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SPEAK, MR. BARR, SPEAK.

A guest article by John K. DiMugno, Esquire, a California attorney, legal educator, and the author or coauthor of multiple legal treatises and legal periodicals published by Thomson Reuters.

William P. Barr, Attorney General of the United States, recently spoke at the American Law Institute’s Annual Meeting in Washington, D.C. The ALI likely extended the invitation shortly after Mr. Barr’s confirmation when there was hope that he would play a role similar to that of the departed General Mattis and General McMaster and place guardrails on the President’s more authoritarian instincts. By the time of the Annual Meeting, those hopes had evaporated. Mr. Barr’s dissembling about the contents of the Mueller Report raised serious concerns about the Attorney General’s complicity in administration efforts to undermine the rule of law.

This Blog highlighted the incongruity between Mr. Barr’s conduct in office and the core mission of the ALI. Notably, Mr. Wall’s post made no attempt to silence Mr. Barr, a solution that would have satisfied the wishes of many in the ALI who were rightfully appalled by Mr. Barr’s transparent attempt to mislead the American public. But barring Mr. Barr from speaking would have entangled the ALI in partisan politics, something the organization scrupulously avoids for good reason. Staying above the political fray insulates the ALI’s Restatements of the Law against charges of political bias and broadens their influence on courts and legislatures around the country.

Mr. Wall’s proposed solution—letting Mr. Barr speak while contributing the ALI’s earnings from the speech to legal aid societies around the country—perfectly balanced those competing concerns. It had the salutary effect of simultaneously benefitting public interest groups that desperately need the money while drawing attention to questions about Mr. Barr’s integrity.

Mr. Barr’s penchant for making transparently misleading and often contradictory statements has left some wondering what he hopes to achieve other than aggrandize power and influence in the Trump administration. Sharon LaFraniere, Charlie Savage and Katie Benner, People Are Trying to Figure Out William Barr. He’s Busy Stockpiling Power, New York Times on line, June 9, 2019. 

He misled the American public about the contents of the Mueller Report knowing full well that when the report was released several weeks later his lies would be evident to everyone.

When Mr. Barr sought confirmation as Attorney General, he told the U.S. Senate that he had known Robert Mueller for years and did not believe that Mr. Mueller would engage in a “witch hunt.”  Yet, shortly before his confirmation hearings, he sent a memo to the Justice Department characterizing the obstruction of justice charges against the President as “asinine” and sent an e-mail stating he saw far less reason to scrutinize the Trump campaign’s ties to Russia than to investigate whether donations to Hillary Clinton’s family foundation had influenced her actions as secretary of state. Once he was confirmed, he enabled the President’s attempts to distract from the contents of the Mueller Report by opening an investigation of those who investigated him.

When Mr. Barr was seeking confirmation, he told the U.S. Senate Judiciary Committee that he was willing to reconsider the Justice Department’s decision not to defend the Affordable Care Act (ACA).  But, when he became Attorney General, he put the resources of the Justice Department behind litigation in Texas federal district court seeking to invalidate the entire Affordable Care Act.

As the song goes, “There’s something happening here. What it is ain’t exactly clear.” Buffalo Springfield, For What It’s Worth.  I say let Mr. Barr speak. Listen closely to what he says and watch what he does. Only then will whatever is happening start to become clear.

Download John DiMugno 06 13 19 Blog Article for IBF (2)

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UBER RUN OVER BY ITS OWN STIPULATED PROTECTIVE ORDER.

The City Attorney of San Francisco started an investigation which concerned Uber.  The City Attorney issued administrative subpoenas as the City Attorney was authorized by California law to do.

The administrative subpoenas required Uber to provide reports and data that Uber had previously submitted to the California Public Utility Commission.

Uber's response to the subpoenas was less than "substantial compliance," which triggered a lawsuit by the City Attorney.  The City Attorney requested a court to enforce the administrative subpoenas.

Early in the lawsuit, Uber and the City Attorney entered into a Stipulated Protective Order.  In it, Uber stipulated that its confidentiality interests were fully protected by the Order.

Nonetheless they resisted.

The appellate court affirmed.  "It is Uber's burden to demonstrate that the protective order is inadequate to protect its privacy interests, a burden that Uber fails to meet."  City and County of San Francisco v. Uber Technologies, Inc., No. A153205, 2019 WL 2436750, *10 (Cal. 1st DCA May 17, 2019).

They were for it until they were against it.  The Stipulated Protective Order was great until it wasn't.  That doesn't work in court very often.  It did not work here, that's certain.

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PARTIES STIPULATE "ATTORNEYS' EYES ONLY," MAGISTRATE JUDGE FINALLY SAYS "NO."

In Hyundai Mtr. Am., Inc. v. Midwest Indus. Supply Co., No. 2:17-cv-03010-JCM-GWF, 2019 WL 2411420 (D. Nev. June 6, 2019) (Foley , USMJ), both the defendants and the plaintiffs filed motions to seal testimony and evidence.

Both sides said that they had stipulated to this secrecy.  Both sides said that they had "good cause" to seal this evidence.

In their requests to seal testimony and other evidence, the defendants said:

Defendants represent that such filings contain confidential and proprietary information designated as confidential or for “attorney's eyes only” pursuant to the parties' stipulated protective order. Further, Defendants represent that [one of the witnesses' testimony] contains confidential settlement discussions.

Hyundai Motor America, 2019 WL 2411420 at *1.

Likewise, along with their own requests to seal testimony and other evidence, the plaintiffs said:

Plaintiffs represent that the above documents contain confidential, sensitive and non-public information and is designated as confidential under the parties' stipulated protective order.

Hyundai Motor America, 2019 WL 2411420 at *1.

The Magistrate Judge ruled that the parties had shown good cause to seal neither the testimony nor the documentary evidence that they wanted to keep from public view.  The testimony and the documents had been filed in support of dispositive motions, motions more than "tangentially related" to the issues in the case.  The presumption of public access to court files trumped the parties' stipulation in this case.

So far.  The Magistrate Judge gave the parties in this case until Monday, June 17 to file more motions to seal.

Stay tuned.  Until then, the presumption of public access to evidence that judges rely on in their rulings -- at the request of the same parties that want to keep the evidence secret even though they ask the judge to rule on it -- is prevailing.

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WILL THE SECRECY EVER STOP? WILL PUBLIC ACCESS COURT FILES?

This article continues from the end of the article published here on Wednesday, June 5, 2019.

 

2. Under Secrecy agreements and Secrecy orders like the ones in the People of California v. Wells Fargo case, what was marked "confidential" purportedly stays "confidential" even if it is put in front of the judge.  California Rules of Court 2.550 and 2.551 were written to cover the case of what evidence can be sealed and how someone can go about asking a judge to seal that evidence.  However, neither of these Rules applies to the evidence exchanged between the parties as a lawsuit goes forward, which again is called discovery.

Under the Rules of discovery that are meant to apply to all cases, everybody drops the argument that they have a "right" to conceal evidence once they argue that previously concealed evidence is a part of their case.  This includes when they give the judge the evidence they previously marked "confidential" in an effort to get a favorable ruling from the judge on one of their motions. 

Secrecy agreements and their secrecy orders like the ones in the People of California v. Wells Fargo case make the exchange of evidence during litigation more of a joint exercise in concealment than a concerted effort at discovering the truth, or at least discovering evidence.   Using these agreements and orders, people can show concealed evidence to a judge, but not to the public, just by putting  the evidence into an envelope marked "CONFIDENTIAL--FILED UNDER SEAL PURSUANT TO PROTECTIVE ORDER AND WITHOUT ANY FURTHER SEALING ORDER REQUIRED."^[1]  This simply could not be done without the secrecy agreements and their orders rewriting the Rules.

3. Keeping control over the evidence marked "confidential." The secrecy stipulations in this case, and the January 2016 agreement in particular, were also written to keep control of the "confidential" evidence after the case was over.  The January stipulation provides that it shall always be "binding" unless the party that designated the evidence as confidential, or a judge, says otherwise.^[2]

It apparently was not enough to make the January stipulation in this case endless, however, even after it became a judge's order in February 2016.  The agreement and its order also add a provision typically found in secrecy stipulations-turned-into-secrecy-orders in many other cases, to the effect that once the case ends, "confidential" evidence must either be returned to the party that designated it "confidential," or it must be destroyed.^[3]  In short, the people that possess the evidence marked confidential are required to give it up at the end of that case.  They cannot make the evidence public.  The evidence can only be used for that one case.  When that one case ends, then the way that the thinking goes behind the secrecy here, there is no longer any reason to hold onto the evidence.  The public has no interest in it, according to the lawyers who write these agreements, it seems, and the public seemingly has no dog in this fight either, according to the judges who enable this behavior by validating these secrecy agreements.

This is the end of a three-part series of articles on representative secrecy stipulations that the parties agreed to in one case, the case of People of California v. Wells Fargo.  This is not the end of secrecy stipulations, of course.

Not by a long shot.

Not yet.

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[1] Id., ¶ 18, at p. 8.

 

[2] Id., ¶ 21, at p. 8.

 

[3] Id., ¶ 22, at p. 9.

 

MORE SECRECY, MORE THROWING SHADE ON YOUR FINANCES?

This article continues from the end of the article published here on Tuesday, June 4, 2019.

The stipulation adopted by a judge's order in February 2016 in People v. Wells Fargo lines up behind many other secrecy stipulations and orders used in many other jurisdictions.  It restricts the use of any evidence marked "confidential," to the lawsuit in which the stipulation is filed.  It provides that such evidence may not be used for any other purpose "whatsoever."^[1]   This was pretty obviously intended to be taken literally.  It would mean that the only people who can use evidence marked "confidential" in the People of California v. Wells Fargo case in California are the people involved in that case.  No-one else can ever use it, or even see it. Even the people involved in the case named People of California v. Wells Fargo cannot use such "confidential" evidence anywhere else.

So, perhaps it would be wrong to assume without evidence that the L.A. City Attorney's Office shared Wells Fargo's forbidden special interrogatory answers with the federal agencies that subsequently filed actions over the same charges against Wells Fargo.  There is absolutely no evidence for that matter that the Los Angeles City Attorney's Office ever shared any information with anyone else that was stipulated to secrecy in that case.  This is a much more certain way of keeping a secret than asking a judge to apply the law.

The City Attorney's Office and Wells Fargo also agreed and the judge ordered in that case that if a party considered "competitively sensitive" information to require a "confidential" marking did not mean that anyone else agreed that it was competitively sensitive just because it was marked confidential.^[2]   In other words, the parties agreed in that case that "competitively sensitive" information could be withheld from public view.

The only party that could possibly care if something was "competitively sensitive" is of course a business which faces competition.  In this case, the only party fitting that description is the bank which was accused of abuses in "cross-selling" financial products to the bank's existing customers.  By grafting the concept of keeping any "competitively sensitive" secret to the overall idea of court protection, the parties rewrote the Rules to benefit themselves.

Perhaps more accurately, one of them did and the other agreed to it.  The Rules say nothing about keeping evidence from the public because the evidence might be "competitively sensitive," of course.  The rewritten rule of secrecy agreements like the January 2016 Stipulation would make it possible for a bank, for example, to withhold evidence that might tend to support charges that it is opening accounts in customers' names without the customers' permission or even knowledge.  If that kind of evidence got out into the public, it could be misconstrued.  Whether misconstrued or true, such evidence would understandably be "competitively sensitive." 

What evidence Wells Fargo may have had in the People of California v. Wells Fargo lawsuit is something we may never know.  Wells was granted the "right" in this case by this stipulated secrecy order to conceal whatever it knew.

When the judge signed this stipulation into an order, Wells Fargo's "right" became a ruling and not just an agreement.

To be continued ....  Please Read The Disclaimer.  ©2019 Dennis J. Wall.  All Rights Reserved.

 

[1] Id., ¶ 9, at p. 6.

 

[2] Id., ¶ 11.a, at p. 6.

 

SECRECY STIPULATIONS CLOSED ACCESS FOR CLAIMS OF CROSS-SELLING PRACTICES.

Proposed secrecy orders in 2015-2016 California lawsuit filed by the L.A. City Attorney. Many of the changes made by the secrecy agreements in this California lawsuit were made earlier in previous lawsuits, as noted.  Other Rules changes in the agreements signed in this case have not often appeared in other cases, however.

There are three main ways in which their January 2016 secrecy agreement validated by the judge in February in this case changes the Rules that were written to apply to all cases. 

1. The secrecy agreements and proposed orders defined "confidential" to mean what the lawyers say it means.  One of the familiar features of secrecy agreements in private litigation is that the definition of exactly what is "confidential" is always what the lawyers say it is.  Like the stipulated agreements in most cases, the agreements in the case of People of California v. Wells Fargo do not give much of a definition.

What guidance the agreements do give on what is going to be "confidential" in the present case is certainly not based on judges' decisions in past cases.  The agreements and proposed orders generally say that "confidential" means simply whatever the lawyers choose to mark with the word, "confidential."  This includes documents and testimony in all such cases.

In the case of People of California v. Wells Fargo, a judge signed a proposed order which made this proposed agreement into the judge's ruling.  The February 2016 order validating the January secrecy agreement in this case was likely written by the bank.  The judge did not rewrite it.  To the contrary, she took the proposed order, crossed out the word, "proposed," and signed it.  At that point, the stipulation that lawyers wrote became the judge's ruling. 

 The February 2016 order continues down the foggy road of secrecy by adding that "confidential" means any documents or testimony that a party (including its lawyers) "believes in good faith ... is entitled to confidential treatment under applicable law."^[1] 

This includes giving the bank and the L.A. City Attorney in that case "the right to designate as 'Confidential'" any "non-public information," including documents and testimony.^[2]

There is no such thing in the Rules as "non-public information."  The Rules do not even use that term.  Making "non-public information" mean the same thing as protected "confidential" evidence makes it clear that the parties in this case were rewriting the Rules for their own use and, intentionally or not, preventing the public from seeing the evidence if they could.

The people writing the secrecy stipulations in these cases removed any requirement that concealment depends on "good cause shown."  Participants in civil lawsuits in most courts in the United States, including in California, ^[3] can ask a judge to protect them from such things as annoyance, embarrassment, oppression, or undue burden or expense.  However, they cannot ask a judge to protect them under any of the Rules from "non-public information" that may find its way into documents and testimony just because the "information" is "not public," as the participants in the People v. Wells Fargo lawsuit wrote here.

Rather, as we have already seen, the Rules generally governing civil litigation require a party withholding documents during discovery to show "good cause" not to disclose them.  Judges ordinarily rule that the party withholding evidence during litigation has to show that the evidence is privileged or protected from disclosure in some legally recognized way.  Trade secrets "or other confidential research, development, or commercial information"^[4] are examples.  "Non-public information" is not.

Under a Secrecy Stipulation like the one in this case, a person withholding evidence can apparently succeed just by showing that its "designations" were done in the right way in the first place.  If it made the designation the right way, then according to the February 2016 order, the designating person gets to continue to conceal the designated "confidential" evidence.  The only burden is "to uphold any or all designations on Documents, Testimony, or Information."^[5]  People can conceal evidence using a secrecy order like this one by writing the word, "confidential," on anything so long as they say that they "believe[] in good faith that such information is entitled to confidential treatment under applicable law."^[6]

It is certainly easier to prove that a piece of evidence was marked "confidential" in good faith than to prove a privilege against disclosure of that evidence as the Rules require.

It is also a lot easier to prove a good faith belief when you are the only party that possesses evidence of that "good faith belief."

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[1] Stipulation and Protective Order ¶ 1.c., at page 1, entered and filed on February 2, 2016 in People v. Wells Fargo & Co., Case No. BC 580778 (Los Angeles County Superior Court).

 

[2] Stipulation and Protective Order ¶ 2, at page 2, entered and filed on February 2, 2016 in People v. Wells Fargo & Co., Case No. BC 580778 (Los Angeles County Superior Court).

 

[3] The California Code of Civil Procedure regulates civil litigation in California courts.  California Code of Civil Procedure § 2031.060(b) provides as follows in this regard:

(b) The court, for good cause shown, may make any order that justice requires to protect any party or other person from unwarranted annoyance, embarrassment, or oppression, or undue burden and expense.

[Boldface added.]

 

 

[4] Federal Rule of Civil Procedure 26(c)(1)(G). 

 

[5] January 2016 Secrecy Stipulation, ¶ 6, at p. 4. 

 

[6] Id., ¶ 1.c, at p. 1.

 

 

NO BAD FAITH DAMAGES FOR INADEQUATE DEFENSE CLAIM.

That is because Count III failed to state a claim for inadequate defense upon which relief could be granted.  It does not mean that the substantive law of the forum State does not award damages for an inadequate defense; it does.

However, in the federal case of Mosley ex rel. Cellini v. Progressive Am. Ins. Co., No. 14-cv-62850-BB, 2018 WL 4208201 (S.D. Ill. April 8, 2018), U.S. District Judge Beth Bloom granted the liability carrier's motion to dismiss the inadequate defense claim which was alleged in Count III of Plaintiff's Amended Complaint against the carrier.  Count III failed to state a claim of inadequate defense for two reasons.  The Court's reasons for dismissing the inadequate defense claim in that case are instructive.

First, the claim contained a failure to settle allegation so that a claim for contract breach because of an inadequate defense, could not be determined objectively from the contract itself.  It would require a determination of "bad faith" or "good faith," which is a fact determination reserved exclusively to failure-to-settle claims.  The question of good or bad faith, in the eyes of the Court, has nothing to do with a claim of an inadequate defense.  Mosley, 2018 WL at *3.

Second, the Plaintiff did not present any "evidence" that defense counsel was "not competent or qualified[.]"  Mosley, 2018 WL at *4.  In the absence of such allegations, and since liability carriers are not vicariously liable for provided counsel's negligence in the forum State, there could be no claim for inadequate defense in this case as a matter of law.  (The Court must have meant that the Plaintiff did not present any allegations, since the Court was ruling on a motion to dismiss for which evidence should not be an issue.)

Allegations of inadequate defense are clearly almost inextricable from allegations of a failure to settle.  The rulings in this case make that all the more clear.

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CREATIVE USES OF A STIPULATED PROTECTIVE ORDER (SPO).

The parties to a patent infringement case found a creative use for SPO's.  First, they settled the case.  Next they agreed to a protective order that restrained them from talking about the settlement other than what the SPO provided they could talk about.

Well, as sometimes will happen, at least one defendant issued press releases after the settlement and after the trial judge, from the Northern District of California, entered the stipulated protective order which did not allow for the press releases, in basic and simple terms.

So, the trial judge found the defendant in contempt of the SPO which the judge had signed, making it his own.  He awarded the plaintiff's counsel "'the full amount of [the plaintiff's] reasonable attorneys' fees and costs incurred in connection with those contempt proceedings and with their efforts to secure defendants' compliance with the [stipulated protective order]'[.]"  Codexis, Inc. v. Enzymeworks, Inc., No. 2018-1655, 2019 WL 495165, at *2 (Fed. Cir. Feb. 8, 2019).   He also ordered that defendant to retract the press releases and to issue a new statement which he, the trial judge, wrote for them.

The Federal Circuit Court of Appeals affirmed the rulings of the California District Judge in this case.

The moral of the story:  Well there are two morals to this story, really.  First, be creative when thinking about stipulated secrecy.  Second, settle then get a stipulated secrecy order prohibiting anyone from saying anything about the settlement other than what the SPO allows them to say if anything.

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SOURCE CODE SPO (STIPULATED PROTECTIVE ORDER).

A stipulated protective order ("SPO") in Manchester v. Sivantos GMBH, No. CV 17-5309-ODW (JEMx), 2019 WL 1598754 (C.D. Cal. Jan. 30, 2019) (McDermott, USMJ), reached out to specifically provide for secrecy of "source code":

The Stipulated Protective Order (Dkt. 262) governs the production and copying of source code documents. Paragraph 2.9 defines source code material as :

extremely sensitive “Confidential Information or Items” representing computer code and associated comments and revision histories, formulas, engineering specifications, or schematics that define or otherwise describe in detail the algorithms or structures of software or hardware designs, disclosure of which to another Party or Non-Party would create a substantial risk of serious harm that could not be avoided by less restrictive means.

Manchester, 2019 WL 1598754, at *1.

There are a couple of issues with this Magistrate Judge's opinion.  One issue is that the SPO absolutely did not govern the production and copying of source code documents or any other documents, for that matter; the Federal Rules of Civil Procedure govern the production and copying of any documents at all as well as the discovery of witnesses' testimony through depositions, affidavits, and declarations.

Another issue is what exactly is the "serious harm that could not be avoided" if source code documents are disclosed?  Personal injury?  Most likely not.  Property damage?  Again, most likely not.  Harm that would be recognized as grounds for a protective order under the Federal Rules of Civil Procedure?  We do not yet know, even now, the full extent of what the parties agreed in their SPO would be "serious harm" that would follow from the disclosure of source code documents.

However, we do know that the Magistrate Judge in this case required the production and copying of 85 particular source code documents.  The Magistrate Judge went so far as to impose sanctions on a party for its failure to produce hard copies of the source code documents in this case.  The Magistrate Judge's ruling that production of the hard copies was required in this case is based on Local Rules in addition to the terms of the SPO, Manchester, 2019 WL 1598754, at *2-*3, before his extended discussion rejecting waiver contentions.

The SPO in the Manchester case also provided its own "dispute resolution procedure," to use the Magistrate Judge's description.  Manchester, 2019 WL 1598754, at *5.  The Magistrate Judge awarded the opposing party's attorney's fees as sanctions under both Federal Rule of Civil Procedure 37(a) and the SPO in this case.

At least in the award of sanctions, the Federal Rules of Civil Procedure were treated as the SPO's equal in authority in this decision.

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EXPERT TESTIMONY EXCLUDED ON "BAD FAITH" SETTLEMENT NEGOTIATIONS.

A trial judge's expert testimony was excluded in Columbia Cas. Co. v. Ironshore Specialty Ins. Co., C.A. No. 15-197 WES, 2019 WL 2176306 (D.R.I. May 20, 2019).  The retired judge's expert testimony was proffered on the issue of whether a liability insurance company negotiated in bad faith during settlement negotiations in the underlying case.

The federal judge presiding in this case excluded the retired judge's expert testimony.  To be fair, the federal judge's reasoning would have excluded all expert testimony on the subject of a civil litigant's reasonable expectations as the federal judge framed the issue, because testimony on that issue was "irrelevant," least of all "because the average civil litigant is a party representing his own interests, not a fiduciary representing the interests of another."  Columbia Casualty, 2019 WL 2176306, at *5.

If the retired judge had framed his expert testimony in different terms unique to insurer bad faith claims, it might have been relevant and so admissible in the eyes of the federal judge:

Had [the retired judge] cabined his opinion to address his experience with insurance contracts and settlement negotiations of insurance claims specifically, or presented “standards of settlement practice” that were tailored to the unique fiduciary duties imposed upon insurance companies, his opinion may have had more relevance.

Columbia Casualty, 2019 WL 2176306, at *5.

The issues matter.  Framing the issues matters.  More to the point of this case, framing the issues for expert testimony before an expert is even asked to address those issues, matters.

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BARR'S LAW IS TO AMERICAN LAW, AS BARR'S JUSTICE IS TO JUSTICE IN 2019.

Many people alive today remember the Vietnam-era saying and book title that went something like this:  "Military music is to music, as military justice is to justice."  It was so good, it feels right to bring it back in 2019, rephrased and refitted with this encore article for the occasion of William P. Barr's invitation to address the American Law Institute this week in Washington, D.C.

"The American Law Institute is the leading independent organization in the United States producing scholarly work to clarify, modernize, and otherwise improve the law."  That is how the American Law Institute or ALI for short, describes itself on its website's landing page, About ALI.

The ALI invited William P. Barr to speak at its Annual Meeting in 2019.  This week, Mr. Barr will address the membership of the ALI at the organization's Annual Dinner and Reception, at $125.00 apiece.

"By participating in the Institute's work, its distinguished members have the opportunity to influence the development of the law in both existing and emerging areas, to work with other eminent lawyers, judges, and academics, to give back to a profession to which they are deeply dedicated, and to contribute to the public good."

Anyone paying attention knows that William P. Barr has not distinguished himself by working to "improve the law" or by working "with other eminent lawyers, judges, and academics" or anyone else that you can name "to contribute to the public good."

Mr. Barr may be "deeply dedicated" but it is not to the legal profession.

The ALI did not ask its membership if William P. Barr should be invited to speak to us at our Annual Meeting.  Let alone to pay for the privilege for a price of $125.00 a head.

So a modest proposal here.  Since he's coming to speak, "leverage" William P. Barr's appearance at the ALI this week to generate a contribution to the public good:  As a member of the ALI, I call upon ALI leadership to donate the proceeds it makes from Mr. Barr's Annual Dinner appearance to at least one Legal Aid Society in each of the 50 States, the District of Columbia, and Puerto Rico.  In particular to Legal Aid in States along the U.S.-Mexico border where Barr's Department of Justice enables and perpetrates so many injustices. 

And if William P. Barr is charging for addressing the ALI, then the ALI leadership must donate an equivalent amount as well to Legal Aid.

They need the money.  William P. Barr does not.

This article is republished both on Claims and Issues Blog, https://claimsissues.typepad.com/, and on Claims and Bad Faith Law Blog, https://insuranceclaimsbadfaith.typepad.com/.

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$1 MILLION PUNITIVE DAMAGES FOR BAD FAITH BREACH OF INSURANCE CONTRACT.

 

In Mazik v. GEICO General Ins. Co., No. B281372, 2019 WL 2150799 (Cal. 2d DCA, Div. 2, May 17, 2019), a California jury awarded $313,508.00 in damages for delayed payment in bad faith of an Uninsured Motorist (UIM) claim.  The jury also assessed $4Million in Punitive Damages.

A California trial judge reduced the punitive damages assessment to $1 Million.  GEICO appealed only the judgment for punitive damages.

A California appellate court affirmed.  In simple and basic terms, the California appellate panel held that the evidence of insurer bad faith conduct in the record of that case was sufficient to support the judgment of bad faith including punitive damages, and the assessment fell within the constitutionally permissible range of punitive damages assessments:

          We reject GEICO’s arguments and affirm. There is sufficient evidence in the record to show that GEICO’s managing agent ratified conduct warranting punitive damages. In concluding that Mazik’s claim was worth far less than the policy limits, GEICO disregarded information provided by Mazik showing that he had a permanent, painful injury, and instead selectively relied on portions of medical records that supported GEICO’s position that Mazik had fully recovered. As reduced by the trial court, the $ 1 million in punitive damages (approximately three times the amount of compensatory damages) is within the constitutionally permitted range in view of the degree of reprehensibility of GEICO’s conduct.

Mazik v. GEICO General Ins. Co., No. B281372, 2019 WL 2150799, at *1 (Cal. 2d DCA, Div. 2, May 17, 2019).

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THE LAST DAY TO SPEAK ON THE PAYDAY LOAN RULE!

I left the following Comments with the current Consumer Financial Protection Bureau earlier today in opposition to repeal of the Payday Loan Rule.  TODAY is the deadline for your own Comments to be heard!  The contact information is all set out in my own Comments, below.

 

May 15, 2019

Consumer Financial Protection Bureau

Online at:  https://www.regulations.gov

 

Re:    Payday, Vehicle Title, and Certain High-Cost Installment Loans;

          Proposal to Rescind or Repeal the "Payday Loan Rule."

          Docket No. CFPB-2019-0006

          RIN 3170-AA80

 

To the Director of the Consumer Financial Protection Bureau:

In your proposal to rescind the Payday Loan Rule you recite that it is cost-prohibitive for you to research the evidence to support your proposal.

          Then you list ten (10) cites as source evidence in your proposal anyway.

          Four of them are SSRN Working Papers which are, by their nature known to people who use them, unpublished pieces written as proposals for a future article.  They are drafts and as such, they are not cited because they are not reliable in that form.

          Another of your sources is from "Mercatus."  Even George Mason University, where Mercatus is housed, will not allow its name to be affiliated with them.

          One involved a survey of 48 borrowers in the Southeast of one State (not even across the whole State in question).  This matches up very poorly with the over One Million Comments that the CFPB has already received on the Payday Loan Rule.

          Another is to a cite that disagrees with your proposal to rescind the Payday Loan Rule.  You cite it apparently to criticize it for not being based on "sufficient evidence" (a common refrain for the current CFPB, it appears).  To the contrary, as I found when I examined the authority that you cite, the authors of that article applied "propensity score matching" in their investigation and explicitly stated that they actually did consider alternative causes before reaching their conclusion that you reject:  "Although a variety of policies could mitigate the health consequences of these exposures, expanding social welfare programs and labor protections would address the root causes of fringe services and advance health equity."  Jerzy Eisenberg-Guyot, Caislin Firth, Marieka Klawitter, and Anjum Hajat, From Payday Loans to Pawnshops:  Fringe Banking, the Unbanked, and Health, 37 Health Affairs 429 (2018).

          Another one of your cites, you note, found "a persistent reduction in liquor sales resulting from payday lending regulations that restricted access for frequent payday loan users."  84 FR at 4293.  This seems at odds with your conclusion that the authors of that article are of the opinion that the effects of regulating payday loans are "not clear."  Id.

          You describe another of your cites as based on a small sample that did not distinguish among types of loans including payday loans.

          That leaves your one cite, which you describe as using "a self-selected sample" to find that getting financial advice "is associated with less payday loan use, but that seeking debt counseling is correlated with a higher chance of payday loan use."  84 FR at 4293-4294.   This does not support your proposal to rescind the Payday Loan Rule.  It is evidence against it.

          In short, the evidentiary basis for rule-making here is definitely in support of retaining the Payday Loan Rule and against rescinding it without replacing it with something better in terms of consumer financial protections.  Your proposal does not replace the Payday Loan Rule with anything.  Your proposal to rescind the Payday Loan Rule is contrary to law and to the evidence and should be withdrawn.

          Thank you for your consideration.

Sincerely,

Dennis Wall

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COMMENT BY MAY 15 ON REPEALING THE PAYDAY LOAN RULE!

I left the following Comments with the current Consumer Financial Protection Bureau earlier today in opposition to repeal of the Payday Loan Rule.  Tomorrow is the deadline for your own Comments to be heard!  The contact information is all set out in my own Comments, below.

May 14, 2019

Consumer Financial Protection Bureau

Online at:  https://www.regulations.gov

 

Re:    Payday, Vehicle Title, and Certain High-Cost Installment Loans;

          Proposal to Rescind or Repeal the "Payday Loan Rule."

          Docket No. CFPB-2019-0006

          RIN 3170-AA80

 

To the Director of the Consumer Financial Protection Bureau:

 

1. From the beginning, the Payday Loan Rule has never been what you call a "2017 Final Rule."

Throughout the Comments I am going to make, I refer to the Payday Loan Rule as the Payday Loan Rule, which is what it is.  Your labeling the Payday Loan Rule a "2017 Final Rule" is misleading and unacceptable.  It makes it seem that you issued the Payday Loan Rule on your watch in 2017 and you simply changed your mind about it two years later.  That is not what happened.

        The Payday Loan Rule was proposed on June 2, 2016.  It was published in the Federal Register on July 22, 2016.  It received over one million (1,000,000) Comments since then.

        It was only finalized based on research and the evidence in November 2017.  The CFPB was not under the control of the current federal government at that time.

2.  The reason behind your proposal to repeal the Payday Loan Rule is not that the Rule eliminated payday             loans; it did not. The reason behind your proposal to repeal the Rule is instead that the Rule made "payday     loans" an unfair and abusive practice when the loans were extended to the consumers "without reasonably determining that consumers have the ability to repay those loans according to their terms[.]"

There is a problem with payday loans that calls for consumer protection, as you recognize yourself by stating that you are now "proposing a different approach to determining whether consumers can reasonably avoid the substantial injury that the Rule determined is caused or likely to be caused by the failure to underwrite these loans."  84 F.R. at 4253.

          This proposal to rescind the Payday Loan Rule is not "a different approach" as you say at 84 F.R. page 4253.  To put it another way, this is not "repeal and replace" by any stretch.  This is simply "repeal."

          There is no replacement for the Payday Loan Rule yet there is a need for consumer protection in this area, which you admit.  I agree with your recognition of a need for consumer protection in this area.  I also agree with Ms. Annie McMahon's May 3, 2019 Comment asking you "How are loans designed to trap people in debt fair to consumers?"  Yet you propose no substitute protections, only repeal of the protections given by the Payday Loan Rule.  This is not rational nor sufficient for making rules.

          I further agree with the April 23, 2019 Comments of Ms. Katy Whitehouse that the Payday Loan Rule was the result of a compromise, containing "an essential consumer protection" on the one hand, while on the other hand "still allowing for consumers to have access to credit, including longer-term installment loans and lines of credit."  She pointed out a crucial fact that you have not pointed out at all in your subject proposal to rescind the Payday Loan Rule and restore the extension of these predatory loans without any safeguards for the consumers involved in them:  "Because lenders have access to borrowers' checking accounts on payday or their car titles, lenders have the ability to collect even though most borrowers do not have the means to repay."  (Emphasis added.)   By restricting its narrow focus to only those payday loans that are made "without reasonably determining that consumers have the ability to repay those loans according to their terms," the Payday Loan Rule struck a reasonable compromise between preserving the inherent protections in these loans of lenders' ability to collect and the new feature introduced by this Rule of offering at least some protection to borrowers who do not have the ability to repay by requiring payday lenders to inquire whether the consumers of their loans have the capacity to repay them.

        Your proposed repeal of this compromise is neither rational nor narrowly tailored to any valid governmental interest in this area.

        Finally, I also agree and submit once again to your renewed consideration the Comments posted by Mr. Nathan Moles on February 15, 2019, the day after your proposed rescission was published in the Federal Register.  He pointed out that the source you cite for your legal authority, the Dodd-Frank Act, allows the CFPB to include "'established public policies'" in the evidence that the CFPB considers in its own rule-making in the same area.  Mr. Moles suggested specifically but without limitation, the example of the Military Lending Act of 2006, and he gave you the cite for your ease of reference, 32 CFR 232.3(g)(2).  Yet you have failed to mention this authority, which of course runs counter to your ambitions to rescind the Payday Loan Rule.

        For all of these reasons, your proposal to rescind the Payday Loan Rule is unsupported and insupportable by any evidence.  It is not authorized and it is not good public policy.  To the contrary, it is your proposal that should be withdrawn in the face of all the evidence, not the Payday Loan Rule.

        Thank you for your consideration.

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COMPLEX COMMERCIAL CONTRACT COURTS: DECLARATORY JUDGMENTS JURISDICTION OVER BAD FAITH?

Delaware has a specialized court for "complex commercial contract cases."  One such case was decided in Arch Ins. Co. v. Murdock, C.A. No. N16C-01-104 EMD CCLD, 2019 WL 2005750 (Del. Super Ct. May 7, 2019).

Arch Insurance v. Murdock is a lawsuit filed by six excess carriers for declaratory relief.  The excess carriers are seeking a declaration that they do not have a duty to indemnify a settlement in an underlying case.

To say it another way, the excess carriers-plaintiffs in this case are each asking a judge to declare that their respective companies do not have a duty to pay for settlement of the underlying case.

Can jurisdiction for a declaratory judgment on insurer good faith duties to settle be far behind?

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NOT BARRED, INVITED: WILLIAM P. BARR AND THE AMERICAN LAW INSTITUTE.

"The American Law Institute is the leading independent organization in the United States producing scholarly work to clarify, modernize, and otherwise improve the law."  That is how the American Law Institute or ALI for short, describes itself on its website's landing page, About ALI at https://www.ali.org/about-ali/.

The ALI invited William P. Barr to speak at its Annual Meeting this year.  In about ten days or so, Mr. Barr will address the membership of the ALI at the organization's Annual Dinner and Reception, at $125.00 apiece.

"By participating in the Institute's work, its distinguished members have the opportunity to influence the development of the law in both existing and emerging areas, to work with other eminent lawyers, judges, and academics, to give back to a profession to which they are deeply dedicated, and to contribute to the public good."

Anyone paying attention knows that William P. Barr has not distinguished himself by working to "improve the law" or by working "with other eminent lawyers, judges, and academics" or anyone else that you can name "to contribute to the public good."

Mr. Barr may be "deeply dedicated" but it is not to the legal profession.

The ALI did not ask its membership if William P. Barr should be invited to speak to us at our Annual Meeting.  Let alone to pay for the privilege for a price of $125.00 a head.

So a modest proposal here.  Since he's coming to speak, "leverage" William P. Barr's appearance at the ALI this month to generate a contribution to the public good:  As a member of the ALI, I call upon ALI leadership to donate the proceeds it makes from Mr. Barr's Annual Dinner appearance to at least one Legal Aid Society in each of the 50 States, the District of Columbia, and Puerto Rico.  In particular to Legal Aid in States along the U.S.-Mexico border where Barr's Department of Justice enables and perpetrates so many injustices. 

And if William P. Barr is charging for addressing the ALI, then the ALI leadership must donate an equivalent amount as well to Legal Aid.

They need the money.  William P. Barr does not.

This article is being posted simultaneously on Claims and Issues Blog, https://claimsissues.typepad.com/, and on Claims and Bad Faith Law Blog, https://insuranceclaimsbadfaith.typepad.com/.

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THEY'RE BACK!!! CREATIVE FINANCING, DILAPIDATED HOUSING, AND BAD FAITH!

Selling houses without making them habitable looks, sounds, and smells like Bad Faith.  Even when they are sold at "instant buying" prices over the internet.  See Ben Casselman and Conor Dougherty, Looking For a Fast Sale?  Silicon Valley is Buying, New York Times, Wednesday, May 8, 2019, p. B1.

Haven't we seen this movie as they say?  Maybe it was so good -- for some -- that they had to do it again.

What title shall we put on this, say, "Great Recession II"? 

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ILLINOIS COURTS CONFIRM INSURED'S OWN INDEPENDENT COUNSEL PAID BY INSURER.

In Xtreme Protection Serv's, LLC v. Steadfast Ins. Co., ___ N.E.3d ___, No. 1-18-1501, 2019 WL 1976482, 2019 IL App (1st) 181501 (Ill. 1st DCA, 6th Div., May 3, 2019) (stated Not Final), the Illinois District Court of Appeal applied the prevailing test in Illinois for whether the insured is entitled to have its own independent counsel at the expense of the liability carrier.

The Court applied the settled test of asking "whether the insurer's interests would be furthered by providing a less-than-vigorous defense" to the allegations in the underlying case against the insured.

If the answer to that question is in the affirmative, then the carrier has the responsibility to pay for the insured's independent defense counsel and loses the right to provide defense counsel of its own choosing.

The trial judge applied the same test and, in a relatively rare procedural ruling, entered judgment on the pleadings in favor of the insured.

The appellate court applied the same test, as noted, and affirmed.

This test is gathering adherents outside of Illinois.  See generally 1 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith, § 3:7 Informing the Insured:  Providing Independent, "Mutually Agreeable" Counsel to the Insured (3d edition Thomson Reuters West, 2019 Supplements in process).

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NEW YORK UIM CLAIM: TRIABLE CONTRACT BREACH, NOT BAD FAITH.

In Liang v. Progressive Cas. Ins. Co., 2019 WL 1925954 (N.Y. App. Div., 2d Dep't, Feb. 5, 2019), the appellate court agreed with the trial court that there are "triable issues of fact" on the Underinsured Motorist Claim that Mr. Liang filed as administrator of his mother's estate.

The appellate court also agreed with the trial court that under New York standards of insurer bad faith, "[h]ere, Progressive established, prima facie, that it did not act in bad faith, since its conduct, under the circumstances, did not constitute a gross disregard of Liang's interests."

The appellate court continued:

Progressive conducted an investigation and had an arguable basis for disclaiming coverage (citations omitted). In opposition, the plaintiff's conclusory assertions failed to raise a triable issue of fact as to whether Progressive's conduct constituted a gross disregard of Liang's interests (citations omitted).

The only disagreement between the appellate court and the trial court in this case was that the appellate court ordered that Progressive's motion for summary judgment should have been granted on the bad faith claim, and not simply that the bad faith claim should be dismissed.  Liang v. Progressive Cas. Ins. Co., 2019 WL 1925954, at *3 (N.Y. App. Div., 2d Dep't, Feb. 5, 2019).

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LESSONS ON SECRET SETTLEMENT NEGOTIATIONS FROM A PRO SE CASE.

A pro se Fair Labor Standards Act case may have some lessons for keeping settlement offers secret in insurance bad faith cases.

In Chenault v. Randstad USA Mfg. & Logistics,[1] Mr. Chenault, representing himself without a lawyer, filed a "Motion to Facilitate Settlement."  He attached "the settlement offer" or, alternatively, "the settlement letter" that he got from the defendants, using the judge's descriptions of the letter.

The defendants asked the judge to seal the letter and so keep the public from viewing the letter in the Court file. 

The reason that the judge gave for sealing the "settlement letter" in this case reveals a lot about how the law treats the secrecy of settlement negotiations.  She ruled:

Because “[t]here exists a strong public interest in favor of secrecy of matters discussed by parties during settlement negotiations,” the Court will Order the Clerk of the Court to place the settlement letter under seal in order to preserve the record. Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976, 980 (6th Cir. 2003). The Court will not consider the settlement letter for any purpose.[2]

Substitute an insurance company accused of bad faith in the place of the defendants in this case, and the lessons of secret settlement negotiations is clear:  Settlement negotiations of the case at bar are a secret.  Period.

The author is currently at work on 2019 Supplements to both volumes of his Book, Litigation and Prevention of Insurer Bad Faith (Third Edition, Thomson Reuters West), including sections on secrecy and settlements. 

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[1] Chenault v. Randstad USA Mfg. & Logistics, No. 5:18-CV-276-KKC, 2018 WL 3964811 (E.D. Ky. August 17, 2018).

[2] Chenault v. Randstad USA Mfg. & Logistics, No. 5:18-CV-276-KKC, 2018 WL 3964811, at *2 (E.D. Ky. August 17, 2018) (emphasis added).

 

FORECLOSURE DAMAGES FOR BAD FAITH.

In Shawnee Tabernacle Church v. Guideone Ins., No. 16-5728, 2019 WL 1779829, at *1 (E.D. Pa. April 23, 2019), the Court was confronted with a water loss and claims of breach of contract and insurer bad faith.  The questions addressed in this particular decision were two:  (1) Are damages for foreclosure recoverable here, and (2) What is the proper measure of those damages?

The Court's answers in this case were, first, that damages resulting from foreclosure are a form of consequential damages and are recoverable in such a case.

Second, the proper measure of damages here is the diminution in fair market value of the property as a result of the foreclosure.

To rephrase Mr. William Faulkner's famous phrase about the past, 'Foreclosure isn't dead.  It isn't even past.'

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CALIFORNIA MAGISTRATE JUDGE ENFORCES CONFIDENTIALITY CONTRACT IN DEFENDANT'S PROTECTIVE ORDER.

In Bell N. Res., LLC v. ZTE Corporation, No.: 18cv1786-CAB(BLM), 2019 WL 1590472 (S.D. Cal. April 12, 2019) (Major, USMJ), ZTE sought a protective order that would prevent BNR's expert witness from testifying to information that ZTE and its lawyer declared confidential under ZTE's employment contract with BNR's expert.  Confused yet?

First, ZTE retained the person who would later become BNR's expert witness in a lawsuit that BNR would later file against ZTE.  The employment contract contained a confidentiality provision.

Next, BNR sued ZTE and BNR proffered the same person as its expert witness.

Then, ZTE filed what it called a motion for protective order, along with its lawyer's declaration testifying on behalf of ZTE, to prevent the expert witness from testifying to anything deemed "confidential" under the confidentiality provision in its contract with the expert.

Got it?  Okay.  So, ZTE was asking the federal court to enforce the confidentiality provision in its contract with the person whom BRN proffered as BNR's expert against ZTE.

A magistrate judge in California agreed to do that.  The California magistrate judge granted ZTE's motion and barred the witness from testifying to anything that ZTE and its lawyer deemed "confidential" under the witness's prior employment contract with ZTE.

Under this reasoning, no whistle-blower could ever testify in a civil action against her former employer if the whistle-blower would testify to anything the employer deemed "confidential" and if there was a confidentiality provision in the employment contract, which of course there usually is.  Confidential information is the whole reason for the whistle-blower testifying in the first place, so this holding would really prevent the whistle-blower's testimony.

What a ruling.  How fortunate ZTE seems to have been in drawing this ruling.

How unfortunate for the public who deserve to hear the whole story, and how unfortunate for whistle-blowers who want to tell the whole story in their testimony in court.

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THEY HUNG UP ON THE STIPULATED SECRECY ORDER.

In AT&T Corp. v. Speednet-Sem LLC, No. 18-12791, 2019 WL 1532359 (E.D. Mich. April 9, 2019), because the defendant took so long to eventually say "no" to AT&T's proposal for its stipulated protective order, the time passed for AT&T, a plaintiff in this case, to amend its complaint.

Undaunted, AT&T filed a motion for leave to file its amended complaint late.  The federal court granted AT&T's motion in this case.

But that is not the most noteworthy thing about this case.  Not at all.

The most noteworthy thing about this case in my eyes is that somebody said "no" to a stipulated protective order.

It will be interesting to see what kind of information the public may be able to access without the barrier of a stipulated umbrella protective order to stop us.

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LENDER FORCE-PLACED INSURANCE BAD FAITH IN THE 21st CENTURY.

Many cases present lender force-placed insurance (LFPI) claims based on alleged recent LFPI practices.  In these cases, homeowners are successful in alleging at least some claims that their lenders and the lenders' servicers and force-placed insurance carriers add kickbacks and other unauthorized, unnecessary charges to the homeowners' monthly mortgage payments.  See, e.g., Alpert v. Nationstar Mort. LLC, Case No. C15-1164 RAJ, 2019 WL 1200541, at *2 (W.D. Wash. March 14, 2019) (alleged LFPI policies from July 2012 through July 2016); Hibbs v. Wells Fargo Bank, N.A., No. 17-615-SDD-RLB, 2018 WL 3245050, at *2 (M.D. La. July 3, 2018) (lender force-placed flood insurance in 2016).

Some of these successful claims include alleged bad faith and unfair dealing.  E.g., Gray v. CIT Bank, N.A., No. 18-1520 (RMB/AMD), 2018 WL 6804273, at *1-*2 (D.N.J. Dec. 27, 2018) (alleged LFPI practices from 2011 through 2017); cf. Wieck v. CIT Grp., Inc., 308 F. Supp. 3d 1093, 1120 n. 14 (D. Haw. 2018) (dismissing bad faith claims because there is no independent tort of "bad faith" in a "non-insurance" context under Hawaii law, but granting leave to amend breach-of-contract claim to include same allegations of bad faith and unfair dealing; case concerned allegedly unnecessary hurricane insurance placed in 2013 and backdated to 2011-2013).

The author is currently at work on an article about "'Quiet in the Courts!' Concealed Evidence and Secret Settlements:  The Lender Force-Placed Insurance Model."

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JPMORGAN, NIGERIA'S MONEY, LONDON LAWSUIT. BAD FAITH? NOT APRIL FOOL'S!

A British case raises an intriguing question for American insurance bad faith litigation.

Under British law, a bank has a duty to act in the best interests of its customers.  The Nigerian government is suing JPMorgan Chase on the ground that the bank allegedly obeyed the instructions of corrupt former officials to transfer some $900 Million to them from a Nigerian government bank account maintained at JPMorgan Chase in London.  The Nigerian government is of the opinion that this was against the best interests of the bank's customers, the people of Nigeria.

JPMorgan Chase is defending this complicated case on many grounds.  One of its defenses raises the intriguing question that may have some resonance in American insurance bad faith lawsuits:  JPMorgan Chase is defending on the basis that its contract setting up the Nigerian government account provided that JPMorgan Chase could act against the best interests of the bank's customers, the people of Nigeria.

Does this mean that an insurance carrier in the United States could insert a provision in its insurance policy that, effectively, it could act in bad faith and deal unfairly with its insureds?

Well, returning to the lawsuit in the U.K. for a moment, the British judge so far is allowing the Nigerian government's lawsuit to proceed against JPMorgan Chase.  Its contract provision has not prevented that, at least so far.  See Emily Flitter, Nigeria Sues JPMorgan to Recoup $900 Billion, New York Times, Monday, April 1, 2019, p. B1 (no online version found; when posted online the New York Times may charge for online access to this article).

As for the question of an American insurance carrier inserting a provision in its insurance policy to disavow any duty of good faith and fair dealing, there is some authority on that.  We will take a look in future articles posted here.

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TOWERS OF POWER? LAYERS OF EXCESS? COVERAGE ADDRESSED BY LABELS?

In COSTCO Wholesale Corp. v. Arrowood Indem. Co., NO. C17-1212RSL, 2019 WL 1330455 (W.D. Wash. March 25, 2019), a federal judge applied the express terms of an excess liability insurance policy.  Of course, the federal judge also described the excess carrier's coverage as one "tower" of power, but that did not stop him from reading the policy.

The federal judge applied the particular carrier's excess insurance policy language to hold:  First, that both the policyholder's, COSTCO's, and the carrier's, Arrowood's, respective motions for summary judgment were both granted in part and denied in part.

Second, Arrowood showed "no basis on which that amount [of Arrowood's payment toward an underlying settlement] should be reimbursed."

Third, the Court found that "the post-settlement arbitration costs paid by Arrowood - including mediator expenses, expert fees, and attorney’s fees - are recoverable “Loss” as long as they are reasonable, and the record does not support a finding that any particular invoice or portion of an invoice was unreasonable."

Finally, COSTCO was held not to be "entitled to recover expenses incurred on programmatic relief, however, or its attorney’s fees in this coverage litigation. Neither party is entitled to summary judgment on Costco’s tort and statutory claims."

COSTCO Wholesale Corp. v. Arrowood Indem. Co., NO. C17-1212RSL, 2019 WL 1330455, at *10 (W.D. Wash. March 25, 2019).

So, there you have it.  No tower of power.  Only judicial interpretation of insurance policy language, even the language of an insurance policy issued by an excess carrier.  When it comes to judicial interpretation, hanging out in a tower is not a good escape.

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CONSUMER PROTECTION CLAIMS FOR INSURER BAD FAITH.

Consumers have a right of action under Washington's Consumer Protection Act against their insurance carriers for breach of the duty of good faith and fair dealing, i.e., for insurer bad faith.  This rule has been applied recently against a health insurance carrier accused of failing to deliver the insurance services for which it charged insurance premiums approved by the Washington State Office of the Insurance Commissioner.

In particular, the plaintiff-policyholder alleged that the defendants' "unfair or deceptive acts or practices in conducting its insurance business" consisted in pertinent part of failing to have in-network providers as represented, and failing to provide coverage represented by the defendants to be within the plan.  Harvey v. Centene Mgt., Co. LLC, ___ F. Supp. 3d ___, No. 2:18-CV-00012-SMJ, 2018 U.S. Dist. LEXIS 198773, at *13-*14, 2018 WL 6112407, at *4 (E.D. Wash. Nov. 21, 2018).

Interested in current events?  Take another look: READ BARR'S LETTER LIKE A  LAWYER LIKE BARR from our sister blog, Claims and Issues.

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CONSUMER PROTECTION CLAIMS OVER AARP'S MARKETING OF MEDIGAP INSURANCE POLICIES: ....

THE FILED RATE DOCTRINE IS NO BAR, EVEN ASSUMING THAT IT APPLIES TO INSURANCE CASES.

A 2-to-1 decision last year by a panel of the Eleventh Circuit Court of Appeals, Patel v. Specialized Loan Servicing, LLC, 904 F.3d 1314 (11th Cir. 2018), may not mean what you think it does.

The Patel panel decision has often been put into an argument that goes something like this:  Courts have no business changing filed rates that have been approved by authorized regulatory agencies.  The federal filed rate doctrine forbids it.  Insurance claims are regulated by states, so the filed rate doctrine bars claims that involve filed insurance rates approved by state insurance commissioners authorized to approve them.

That is not what Patel stands for.

On St. Patrick's Day 2019, the Chief Judge of a U.S. District Court pointed out that Patel stands only for applying a filed rate doctrine where the complaints at issue challenge the amount of the approved insurance rate (assuming for purposes of decision that the state recognizes a filed insurance rate doctrine):

In reaching this conclusion, the Eleventh Circuit focused on “[t]he most obvious basis,” id. at 1325, namely, “the fact that the plaintiffs repeatedly state that they are challenging [the insurance company’s] premiums,” id. at 1325–26, using language targeting “artificially inflated premiums,” “unreasonably high force-placed insurance premiums,” and “amounts charged for insurance coverage,” id.at 1326, such that “[t]he plain language of the complaints therefore shows that the plaintiffs are challenging the reasonableness of [the insurance company’s] premiums; and since these premiums are based upon rates filed with state regulators, plaintiffs are directly attacking those rates as being unreasonable as well,” id. The court described these claims “directly challenging the rates ... filed with state regulators” as “textbook examples of the sort of claims that we have previously held are barred by the nonjusticiability principle.” Id.

    The other circuit cases on which the defendants rely are distinguishable from the plaintiff’s claims for precisely the reason Patel is: in each case, the plaintiffs directly challenged the filed rate.

Krukas v. AARP, Inc., ___ F. Supp. 3d ___, No. 18-1124 (BAH), 2019 WL 1243864, at *12-*13 (D.D.C. March 17, 2019) (Howell, Chief Judge). 

In Krukas in contrast, "the Complaint at issue does not challenge the amount of the Medigap insurance rate or the amount collected by the insurance provider [UnitedHealth] that has been approved by state insurance agencies."  Krukas v. AARP, Inc., ___ F. Supp. 3d ___, No. 18-1124 (BAH), 2019 WL 1243864, at *13 (D.D.C. March 17, 2019).  Other courts in other cases filed over AARP's collection of what it calls a "royalty" and plaintiffs call an unauthorized "commission" have reached different results over whether a filed rate doctrine applies, "but closer scrutiny shows this is due to differences in the claims asserted."   Krukas v. AARP, Inc., ___ F. Supp. 3d ___, No. 18-1124 (BAH), 2019 WL 1243864, at *13 (D.D.C. March 17, 2019).

Even assuming that the District of Columbia would impose a filed rate doctrine in insurance cases (an open question), the District Court had little problem in refusing to apply a filed rate doctrine in this case against AARP, and in which the insurance provider that charged and collected an apparently approved rate was not even made a party:

This reasoning is easily distinguishable since the instant suit is not filed against UnitedHealth and does not challenge the legality of the approved rates charged by UnitedHealth. Rather, the plaintiff’s claims challenge AARP’s practices and disclosures regarding the defendants' retention of a portion of the rates UnitedHealth filed.

Krukas v. AARP, Inc., ___ F. Supp. 3d ___, No. 18-1124 (BAH), 2019 WL 1243864, at *14 (D.D.C. March 17, 2019).

Parenthetically, I say "apparently approved," because as the Court itself noted in the Krukas case, it would not consider exhibits proffered by the defendants at the motion-to-dismiss stage which "would be premature."  Neither the defendants nor the Court wanted to treat the defendants' motion to dismiss as a motion for summary judgment "without a full record" regarding the information filed by the carrier with the insurance regulator.  Instead, at the motion-to-dismiss stage "the Court looks only to the plaintiff's Complaint" in that case.  Krukas v. AARP, Inc., ___ F. Supp. 3d ___, No. 18-1124 (BAH), 2019 WL 1243864, at *11 (D.D.C. March 17, 2019).

In sum, the filed rate doctrine is not in our stars, so to speak, it is in the claims that are alleged.  The filed rate doctrine does not apply to conduct and practices that "are independent of any approved rates."  The FRD does not exist when "resolution of these claims ... does not necessitate any determination about the reasonableness of the rate."  Krukas v. AARP, Inc., ___ F. Supp. 3d ___, No. 18-1124 (BAH), 2019 WL 1243864, at *15 (D.D.C. March 17, 2019).  So take a look at what is alleged and what is proffered before a Court rules on the filed rate doctrine. 

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EQUITABLE CONTRIBUTION BETWEEN INSURERS IN FLORIDA: DEFENSE? "NO," INDEMNITY? "YES."

Or at least one Federal Judge just said so in Lawrence v. ACE Am. Ins. Co., No. 8:18-cv-738-T-24, 2018 WL 6192190, at *8-*9 (M.D. Fla. November 28, 2018):

    ACE moves to dismiss this claim, arguing that Florida does not recognize a cause of action for equitable contribution between co-insurers. The flaw in this argument, however, is that Florida does not recognize a cause of action for equitable contribution by co-insurers in order to recover defense costs. [Federal citation omitted.]  USAA is not seeking to recover its defense costs in the underlying litigation, and as such, this argument for dismissal has no merit.

     Florida does recognize a cause of action for equitable contribution by co-insurers for the amounts the insurer paid to indemnify the insured. 

Please Read The Disclaimer.  ©Dennis J. Wall.  All Rights Reserved.