Claims and Bad Faith Law Blog

Timing is Right for Trick or Treat

 ... and For Federal Protection From CatClaims Too?

 Timing is everything.  Two of the larger Property-Casualty Insurance Companies in the world chose Halloween to propose an unprecedented program to backstop their payment of CatClaims.  Their proposal would limit the total amount of their payments for CatClaims or catastrophic damage claims caused by weather.  At the same time, as previous posts and reports have addressed, they and the rest of the Property-Casualty sector, in fact, most of the Insurance Industry, announce record profits.

    Not all Insurance Companies agree with this new two-prong proposal.  They point out that Terrorism Claims, for example, have a Federal backstop because there is little history in this country of how terrorism affects the risk of payment for particular properties.   Underwriters do not have enough information on which to base premiums and their Companies are in the dark about whether they can afford to offer Terrorism Coverage as a result.  That is not the case with weather, they say.  There are years of facts built up about CatClaims and how particular properties attract destruction and damage from Hurricanes and other weather-related causes.

    In other words, Insurance Underwriters have always had the ability to calculate the risk of CatClaims.  They had the ability before Katrina came, and they have the ability to calculate the risk of CatClaims now.  If a particular Company does not want to underwrite the risk, these other Insurers point out, then that particular Company does not have to write the policy.  That is the choice of each particular Property-Casualty Insurance Company -- and the reality is that those Property and Casualty Insurance Companies that decided to issue the policies made a large profit after all the Catclaims from Katrina were paid in 2005, and the sector will make record profits in 2006.  That is what the Insurance Companies opposed to a Federal backstop for CatClaims Coverage are pointing out in another comprehensive news report by Joseph B. Treaster in "A Proposal for Federal Protection From Catastrophe Divides Insurers" (New York Times Nat'l Ed., page C1, col. 1, Tuesday, October 31, 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 FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE IN THAT JURISDICTION, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.
   

FEDERAL REMAND: MORE ABOUT ....

                        .... Less Than $75,000 Bad Faith Damages.

    This issue was addressed in a previous post on October 26, 2006.  That post addressed two recent Federal Cases, one of which was decided in the Eastern District of Pennsylvania, Howard v. Allstate Insurance Co.  In the Howard case, the Federal Judge grants remand back to State Court whence the lawsuit came.  The reasons include that the Complaint filed by the Plaintiff, Mr. Timothy Howard, seeks Damages "not in excess of $50,000" although the Complaint includes a prayer for Punitive Damages too.  Further, under Federal Third Circuit Court of Appeals' precedent, remand has to be granted whenever it appears "'to a legal certainty'" that the Plaintiff is not entitled to recover the Federal Diversity Jurisdiction Amount of $75,000.

 Within the same Federal Third Circuit, but in the Middle District of Pennsylvania, the Plaintiff's Motion to Remand was Denied in the even more recent Federal Case of Download Carnathan_v. Ohio National Life Insurance Co. and Jefferson National Life Insurance Co. (M.D. Pa., Case No. 1.06-CV-999, Opinion Filed October 18, 2006).pdf.  Mr. Paul Carnathan filed that lawsuit seeking a Declaratory Judgment that would interpret and reinstate his disability income insurance policy.  The policy, if reinstated, would provide Mr. Carnathan "'a monthly benefit of $2500 a month [sic] for life if plaintiff becomes disabled.'"  The Complaint filed by Mr. Carnathan did not seek payment of the disability benefits nor did Mr. Carnathan's Complaint allege that he is presently disabled which he is not, although the Complaint includes a prayer for Punitive Damages.

    "It is clear that the amount in controversy has been met," wrote the District Judge in Mr. Carnathan's unwillingly Federal Case (Mr. Carnathan, at least, is unwilling to have his case decided there).  The Complaint and the case will stay in Federal Court under this ruling.

    Since Mr. Carnathan sought Declaratory Judgment, the demand for relief in his Complaint did not provide a sum of money against which to measure the required Jurisdictional Amount for Federal Diversity.  The Federal District Court looked therefore to Third Circuit precedent that "[w]here the validity of an insurance contract is at issue," such as in this Declaratory Judgment action, the amount in controversy can be figured out by taking into account "'the full value of the contract,'" including payments that "'may possibly'" be payable to the Policyholder.  No "legal certainty" standard here, which would have required remand if met.  No, to the contrary, as noted the standard applied here on these facts and allegations is "'may possibly'" meet the jurisdictional amount:  "If a possible award under the insurance policy could exceed the jurisdictional amount, the amount in controversy requirement is met."

    After that analysis, the Federal District Court had no problem calculating that if Mr. Carnathan possibly received disability benefits under this policy, then his disability benefits could meet the jurisdictional amount in 30 months.  Again, it bears repeating that a major lesson here seems to be that the facts and allegations are crucial to determining the outcome of remand motions in Federal Court, just as the facts and allegations also can often determine the outcome of the entire Bad Faith case in any Court including Federal Court.  Another issue  arises from even a quick comparison of the Howard v. Allstate decision in Pennsylvania's Eastern District, and this even more recent Carnathan v. Ohio National Life decision in Pennsylvania's Middle District.  It looks like the Federal Third Circuit Court of Appeals has some reconciliation tasks ahead of it on legal standards applicable to a Motion for Remand.

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.

Expert Proffered for Memory Forgets Previous Crossexam!

            When Does an Expert Hearing Make National News?

 When the Expert is being examined in Federal Court for reliability in a high-profile case.  And, it seems, when the Expert is proffered on what the media calls "a memory defense," and testifies that she forgets that the interrogating attorney, in this case Patrick Fitzgerald, also previously cross-examined her in a different case.  That is what is being reported in Carol Leonnig, "In the Libby Case, A Grilling to Remember" (Washington Post, page A21, Friday October 27, 2006).

    Remember that the reports so far are newspaper and other media accounts.  The reports also note that the Federal Judge has not yet ruled, apparently, on the issues addressed at this Expert Hearing.  For recent issues addressed by Federal Courts and State Courts in Insurance cases, here is an article I wrote this year:  "Experts, Gatekeepers, and Insurance Issues in Federal Cases."pdf.   In other articles, I have addressed case law and the practical experience of actually dealing with issues of when to use and how to interview and retain Insurance Experts in the first place.  Here is a link to one, published in Coverage magazine through the Insurance Coverage Litigation Committee of the American Bar Association:  "Insurance Expert Witnesses:  When is Their Opinion Testimony Admissible and When is it Desirable?".pdf.

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.

Pay Me Now, Pay You Later

     So-called "life settlement" agreements involve Policyholders and Buyers, in broad and general terms.  The Policyholders are often ill or elderly or both, and they are going to die later from the illnesses they are suffering through now.  Their incentive is to pay the bills, now, rather than to have Life Insurance Companies pay on account of their death in the future.

    The Buyers in such cases are generally willing to buy a later payout on the Policyholder's Life Insurance, if the later payout they receive in exchange for current cash is larger than the money they give the Policyholder now.

    According to a suit filed by the Attorney General of the State of New York, some of these Buyers may be willing to buy more than "life settlements" with Policyholders.  Some of these Buyers may be willing to pay money to save their place in line, so to speak, according to a news report published today by Charles Duhigg & Joseph B. Treaster, "Spitzer Accuses a Company of Bid-Rigging and Other Types of Fraud" (New York Times Nat'l ed. page C3, col. 1, Friday, October 27, 2006) click here for online access.

     It is also noted in this news report that some involved in this 'industry' of buying life settlements are fretting that the public perception of their kind of business is not good.  Public relations may not be an answer here, however.  You just cannot make a silk purse out of a sow's ear.

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.

An Interactive Graphic is Worth A Thousand Words!

    To see how well many sectors of Insurance are doing, click here and engage the Interactive Graphic:  Sector Snapshot, Insurance.  Or see the print edition in today's New York Times, on page C9 (Nat'l ed. Friday, October 27, 2006).  It is worth a thousand words!

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.

World Profits Beyond Premiums for CatClaims Coverage.

    The Wall Street Journal reports news today that with Catastrophe Claims down the world over, higher profits are not centered in the U.S.  In fact, they are not centered at all, they are anticipated and they are being reported from Insurance Companies across the face of the globe.

    Further, large earnings reports for the Third Quarter just ended are clearly coming from, and anticipated from, sectors of Insurance above and beyond the Property-Casualty sector associated with CatClaims.  See today's news report:  Liam Pleven & Ian McDonald, "Insurers' Profits Rise on Sales, Fewer Hurricanes" (Wall Street Journal page A8, col. 4, Friday, October 27, 2006) (online subscription required).

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.   

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. 

FEDERAL REMAND: Less Than $75,000 Bad Faith Damages.

    Some Federal Court decisions issued only days apart, show the differences in facts and maybe in the law necessary to convince a Federal Judge to remand a Bad Faith case.  When any civil case is filed in State Court, it can sometimes be "removed" to Federal Court.  Insurance Companies, which are usually Defendants anyway, will often try to remove a case to Federal Court, in which the Insurance Company has been sued for Bad Faith Damages.

    The legal basis for removal is often Federal "diversity jurisdiction".  This is short-hand for jurisdiction that Federal District Courts have over civil actions between citizens of different States where the matter in controversy is over the value of $75,000.00, not including interest and costs.  The Plaintiff who filed a case in State Court, usually an injured claimant or policyholder, can ask the Federal Judge to "remand" back to State Court including because the controversy does not have a value exceeding $75,000.00.

    That is what happened in two recently decided Federal Court cases.  In one, a motion to remand was granted.  Mr. Timothy Howard filed a State Court Complaint against Allstate Insurance Company including a claim for statutory Bad Faith under Pennsylvania law.  The Complaint alleged claims for Punitive Damages and for Attorney's Fees.  However, the Complaint alleged that the Plaintiff, Mr. Howard, was seeking Damages "'not in excess of $50,000'".  Further, the "civil cover sheet" filed at the time the Complaint was filed lists damages "as $50,000 or less."  Finally, "the case was designated for compulsory arbitration" and under the Pennsylvania  Bad Faith Statute an arbitration award is capped at $50,000.  With these matters in the fact record, the Federal Court had no problem granting the motion to remand in Download Howard_v. Allstate Insurance Co. (E.D. Pa. Case No. 06-04017 Opinion Filed September 28, 2006).pdf.

    Parenthetically, this District Court is governed by the Federal Third Circuit Court of Appeals in which part of the legal standard to determine the $75,000 issue is that remand must occur whenever "'it appears to a legal certainty that the plaintiff [is not] entitled to recover the minimum amount''.  This legal standard is easily met in this case.  The above allegations would likely have caused remand, however, even under a  simpler legal standard such as "preponderance of the evidence," which this District Court says it would apply under Third Circuit precedent "[i]f facts are in dispute ...."  Again, the allegations in the record determine the outcome in this case, except that the alleged claims for Punitive Damages and Attorney's Fees were not enough to increase the likely value of the Claims here.

    In the second Federal Court case, the likely value of claims alleged for recovery of Punitive Damages and Attorney's Fees do help determine that the matter in controversy has a value which exceeds $75,000.  In this case, Mr. Robert Etchison filed a State Court Complaint against Westfield Insurance Company which included allegations that Westfield violated the West Virginia Unfair Trade Practices Act or "UTPA".    Here, the governing Federal appellate court is the Fourth Circuit, where the amount in controversy is determined by figuring out the judgment that the Plaintiff would receive if the Plaintiff prevailed on the merits of his entire case at the time it was removed.

    There, Mr. Etchison claimed Punitive Damages.  The Federal District Judge noted that the Supreme Court of the United States has permitted certain Punitive Damages amounts.  Mr. Etchison also claimed Attorney's Fees under UTPA.  The West Virginia Statute allows "increased expenses such as attorney's fees."  Mr. Etchison's Attorney's Fees, added to other Damages, "will more likely than not exceed the minimum in controversy requirement."  Further, Mr. Etchison at one time demanded $3,000,000.00 to settle his Claims, although by the time of remand his settlement demand was lowered to $70,000.00.  The Federal Judge denied Mr. Etchison's motion to remand on these facts and allegations in the record in Download Etchison_v. Westfield Insurance Co. (N.D.W. Va. Case Nos. 5.05CV99, 5.05CV132 Opinion Filed September 26, 2006).pdf.

    Three days later, the same Federal District Judge granted Westfield's Motion for Summary Judgment.  Download Etchison_v. Westfield Insurance Co. (N.D.W. Va. Case Nos. 5.05CV99, 5.05CV132 Opinion Filed September 29, 2006).pdf.

    One major lesson here seems to be that the facts and allegations are crucial to determining the outcome of remand motions in Federal Court, just as the facts and allegations also can often determine the outcome of the entire Bad Faith Case in any Court including Federal Court.

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.    

ERISA has Spunk When Review is De Novo!

    In a recent decision the Employee Retirement Income Security Act ("ERISA"), was given some spunk under a standard of de novo or brand-new review in Download Wein_v. Prudential Insurance Co. of America (E.D.N.Y.  Case No. 03-CV-6526 Opinion Filed October 2, 2006).pdf.  The Claimant in that case is Ms. Judy Wein.  She filed a lawsuit to recover partial long term disability benefits which were denied under a group policy issued to her Employer, Aon Risk Services, where she worked as an Assistant Director for more than 25 years.

    The Federal Judge denied Prudential Insurance Company's Motion for Summary Judgment, granted Judy Wein's Motion for Summary Judgment, and also granted Ms. Wein's request for reasonable attorney's fees and costs under ERISA in that case.  The key was the Federal Court's standard of review.

    The Prudential insurance policy was part of a long-term disability group coverage Insurance Plan that Aon makes available to its employees like Ms. Wein.   "[T]he policy does not clearly grant discretion to Prudential," said the Federal Court, so that under existing Federal precedent in New York, the Federal Judge was entitled to review even all fact issues involved in the denial of an ERISA claim like Ms. Wein's.  The Federal Judge proceeded to address numerous issues involved in that denial including issues of fact, concluding that "on the basis of the evidence before this court, no reasonable juror would find for Prudential on the limited issue of whether Plaintiff's injuries permit her to perform her job duties full time.  Prudential has not submitted admissible, competent evidence in support of its administrative denial, and has failed to raise any significant doubt about the opinions of [certain stated physicians] on the issue of Plaintiff's physical limitations, or of [other stated physicians] on the issue of Plaintiff's inability to use a computer full time."

    The Federal Judge then reversed Prudential's administrative denial of disability benefits in that case, denied Prudential's Motion for Summary Judgment, and granted the Claimant's Ms. Wein's Motion for Summary Judgment.  Although the Federal Judge also granted Plaintiff's motion for attorney's fees and costs at that time, later, on October 20, 2006, the same Court granted a "letter application" filed by Prudential such that Ms. Wein's fee application was "adjourned" to November 3, 2006 "on account of ongoing settlement negotiations" according to the Court's Docket Entry.  We would appreciate a Comment from the Attorneys involved in that case to let us know the outcome.

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.    



   

Street Value of Berkshire Hathaway at Record High

INSURANCE PREMIUMS AFTER 2005 HURRICANES BRING HIGH IN 2006.

    Today's Wall Street Journal includes this article, and its headline says it all:  "Berkshire Might Be a Bargain at $100,000," by Karen Richardson (Page C1, col. 2, Tuesday, October 24, 2006).   The headline should say it all, because a subscription is required to read anything that follows it.  If you have or want to pay a subscription online try accessing this good article here.

     Historically, it is public record that the most profitable areas of this huge Warren Buffett-led Corporation are in Insurance.   As previously posted on this Blog, CatClaims (Catastrophe Claims due to weather) Coverage has caused a huge increase in Property and Casualty Insurance policy premiums.  Record profits, and not just from premium income as previously posted here also, are expected for 2006.  The greater profits in this sector of Insurance are due in part, it appears (see previous posts), to the absence of Hurricanes and other weather-caused CatClaims this year compared to  Hurricanes Katrina, et al, in 2005 and Hurricanes Charlie, et al, the year before in 2004.

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.    

   

Does "ERISA" Mean "Every Remedy Is Subordinated Always"?

Officially, "ERISA" Stands For "Employee Retirement Income Security Act".

    An "insurance plan" for group health or disability insurance generally comes under the jursidiction of ERISA.   ERISA preempts or bumps aside all State law claims for allegedly unsavory behavior such as claims for breach of a disability insurance contract by allegedly failing to pay long-term disability benefits.  ERISA also bumps aside claims of Bad Faith for allegedly delaying insurance benefits or refusing to pay them.

    In a recent ERISA case, Download Desrosiers v. Hartford Life & Accident Insurance Co. (D.R.I. Case No. 03-018-L Opinion Filed October 17, 2006).pdf, a Federal Judge examined an insurance policy's "Elimination Period", together with the claims of Ms. Sheryl Serreze Desrosiers and her treating physician, and decisions of a plan administrator protected by ERISA.  First, the policy's "Elimination Period" required that Ms. Desrosiers be totally disbled for 90 consecutive days after the initial date of her disability.  The plan administrator of the ERISA-protected insurance plan decided that Ms. Desrosiers was not totally disabled during the "Elimination Period, as well as the following weeks during which time her appeal was being evaluated."  Using the required deferential standard to review such determinations, the Federal Court declared that the denial of benefits to Ms. Desrosiers "was reasoned and based on substantial evidence".

 Ms. Desrosiers' treating physician provided an evaluation reflecting that she was disabled.  The treating physician did not legally have a veto over the contrary decision of the plan administrator under ERISA, however.  The Federal Court followed existing law and held that, in any ERISA case including this one, a plan administrator is not required to defer to evaluations made by the claimant's treating physician.

    ERISA claims will not allow remedies to be recovered unless and until Congress changes ERISA.  Federal Courts refuse to allow any remedies under ERISA other than the ones afforded by Congress itself in that law.   For those that would like to view this case with paid subscriptions, the case is also reported in Desrosiers v. Hartford Life & Accident Insurance Co., 2006 WL 2965508 (D.R.I. Case No. 03-018-L Opinion Filed October 17, 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.

Hurricane Risks Gone Today, Buffett Invests In Tomorrow.

    The payout by Lloyd's of London syndicates for Hurricanes and other Catastrophe Claims due to weather in 2005 was over $100 Million.

    In 2006, there have been very few if any Hurricane and other CatClaims so far.  Property and Casualty Insurers anticipate record profits this year.  These Insurers include some divisions of Berkshire Hathaway such as National Indemnity Company, it is reported in a news article today.  This link is to the public access site for the article and this link shows the print reference:  Joseph B. Treaster, "Buffett and Lloyd's In Deal," page B1, col.  6 (New York Times Nat'l Ed. Saturday, October 21, 2006).

    The article is worth reading.  It further reports on an interesting interview yesterday with Mr. Warren Buffett.  It also reports on the background of Mr. Buffett's (Berkshire Hathaway's) agreement, apparently announced yesterday, to pay up to $7 Billion in what is described as new money toward asbestos and other claims pending against Lloyd's insurance policies.  Equitas, a company formed by Lloyd's syndicates in 1996 to pay or handle asbestos claims and other claims, in turn is providing Mr Buffett's companies $9 Billion which Equitas had built up to pay those claims.  At least part of the $9 Billion will be invested while claims are being paid, and Mr. Buffett also keeps whatever amount, if any, is left after all the claims have been paid.  Such is reported in this very well-researched and well-written news article.

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.

"Good Heavens -- It's Not Health Insurance! Is it?"

    Health insurance is regulated by the government.  Freedom of religion is not so regulated.  A current New York Times news article raises an interesting question:  When do earthly activities make something health insurance, or make it heavenly.  Whatever the outcome in any one of these particular situations, the Insurance issue is just one issue involved.  The major issues are announced in the headlines of the news article:  "A Business Under God's Law, Church Mission Operates Beyond the Reach of Regulators" by Diana B. Henriques, page C1, column 2 (New York Times Nat'l Ed. October 20, 2006).  Here is a link for public access to it online:  Diana B. Henriques, "A Business Under God's Law ...." (New York Times October 20, 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.

More Insurance Profits: Past CatClaims and Current Times.

    "Allstate Rebounds With Storm-Free Summer" is the title of a news article written by Joseph B. Treaster, who also wrote the article on CatClaims Payments, Premiums and Insurance Profits that was the subject of my post on October 15, 2006.  The new article is available for public access including here and it is published in the New York Times, page C2, column 1 (Nat'l Ed. Thursday, October 19, 2006).    This news article also reports, as was noted in yesterday's post about a news report in the Wall Street Journal concerning Property and Casualty insurance, that the predicted industry profit for 2006 is a record $60 Billion.

    The current New York Times article also reminds everyone that the sector of Property and Casualty Insurance includes a vast array of different types of Insurance Coverages.  These different kinds of "P/C" Coverages can include results from Auto policy premiums, Workers' Compensation policy sales, General Liability (and "CGL" or Comprehensive or Commercial General Liability) policy premiums, and also premiums charged for Homeowner's Coverage in policies issued to homeowners located far away from the Gulf Coast not to mention far away from the Atlantic and Pacific Ocean coastlines.  That being said, the article reports that property insurers (apparently shorthand for the property casualty or "P/C" insurance industry) paid $61 Billion for Hurricane claims in 2005 and also that the property casualty insurance industry made a profit in 2005 of $43 Billion.

    As I pointed out in yesterday's post, it should also be remembered that all these current newspaper reports of "profits" for insurance companies, which are the subject of my posts here since October 15, 2006, include investment income, not simply income from premiums paid.  Successful investments do not necessarily depend on higher premiums.

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.

The Street Value of Insurance After CatClaims.

    The Wall Street Journal today reports the same level of insurance industry profit in 2005 as was reported in the excellent New York Times article linked in my October 15, 2006 post, which was $43 Billion in 2005.  That was the year of Hurricane Katrina and other catastrophic weather-related claims (CatClaims), of course.  The figure includes the entire Property/Casualty Insurance industry and it further includes all returns on investments not just the collection of premium money.

    The Wall Street Journal today also reports a range of $55-$60 Billion in profit estimated for 2006 by the insurance industry, which it reports would be a record.   The New York Times article of Saturday, October 15, 2006 reported an estimate of $60 Billion in profit in 2006 in the insurance industry.

    Many links to the Wall Street Journal on the web are subscription-required and whether today's article requires a subscription is not clear since it is not located online this date, but you can try for yourself at Online Wall Street Journal site (subscription may be required).  The article is by Liam Pleven, "Tracking the Numbers/Street Sleuth, Insurers Bask in Sun and Profits As Hurricane Season Nears End," Wall Street Journal  page C3, column 1 (Thursday, October 19, 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.

   

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.

   

Four Corners vs. Facts Too.

    The duty to defend under a policy of liability insurance is determined by two tests in this country.  One is to compare the four corners of the compaint filed against the insured with the four corners of the insurance policy.  The other test is to also consider the facts known to the liability insurance company outside of  or "extrinsic to" the four corners of the underlying complaint and compare those, too, with the four corners of the insurance policy.  Some courts apply both tests. 

    Both tests were very recently applied under Minnesota law by the Federal Eighth Circuit Court of Appeals in Download travelers_property_casualty_co. v. General Casualty Insurance Cos. (8th Cir. Case No. 05-3863 Opinion Filed October 13, 2006)..pdf.   The person claiming Insurance Coverage there, namely a duty to defend him, is a Mr. Paine, who is a golf professional and a member at all times of the Professional Golfers' Association of America ("PGA").  A student allegedly injured in a phys-ed class sued the golf professional for negligence.  Regent Insurance, which has changed its name to General Casualty, issued a liability policy to the PGA which insures Mr. Paine.  Before the final round in the appellate court, the trial judge took pains to consider many links of Minnesota Insurance Law.  The District Court also fairly considered pertinent facts along the way, i.e., the facts and lay of the land known and presented to the liability insurance company.

    In a long opinion, the Eighth  Circuit reviewed the tour of Minnesota Insurance Law taken by the District Judge and pronounced the District Judge's decision as a master.  That Federal Appellate Court affirmed the Federal Trial Court's entry of summary judgment for the liability insurance company, "finding it had no duty to defend".  One Circuit Judge dissented, thereby perhaps either lending credibility to the commonly held but unsupported belief that every golf outing has a kibitzer, or providing support to the less widely held but totally supportable belief that Insurance Coverage Questions are not always as straight of a shot as they may seem to be.

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.

   

 

CatClaims Insurance is at a Premium

 DO LARGE PREMIUMS + ZERO CLAIMS PAYMENTS = PAYBACK?

    An excellent article published in the New York Times on Saturday, October 14, 2006 illuminates a problem with premiums charged on policies potentially intended to cover various claims after a catastrophe:   NY Times on the web:  Joseph Treaster, "Earnings For Insurers Are Soaring" (Nat'l Ed. page B1).  Throughout the remainder of this post, "CatClaims"or "catastrophic claims" refer to claims made after a weather-caused catastrophe, such as Hurricane Katrina.

    Catastrophic claims insurance premiums are expensive in Florida after Hurricane Charlie and 3 other Hurricanes in 2004.  That year, Hurricane Charlie devastated a southwest-to-northeast axis from Port Charlotte diagonally northeast through Orlando to the Atlantic Ocean.  Along the way Charlie devastated Winter Springs where I live.  In 2005 after Hurricane Katrina, insurance for potential CatClaims became expensive in other areas along and near the Gulf Coast.   Courts in the United States have long held that Insurance Coverage under pre-existing insurance policies is mostly excluded for water damage anyway, and most insurers successfully argue against water damge accordingly.  See Download flood_exclusions_dennis_wall_article_final_april.pdf.

    The current problem with high insurance premiums for potential catastrophe coverage may lie in long-term vs. short-term underwriting projections.  It is reported in the New York Times article, again, for ease of access:  Joseph Treaster, "Earnings For Insurers Are Soaring" (N.Y. Times Nat'l Ed. page B1, Oct. 14, 2006), that after Hurricane Andrew mauled South Florida in 1992, insurance companies agreed to project their premiums based on likely weather over the long term.  However, after the hurricanes of 2004 and 2005, insurance companies determined their premiums based on the short term, it is reported in the same article.

    When Homeowner's policies and other potential CatClaims policies were renewed in Florida after 2004, insurance companies did not try to sell consumers on any particular reason for high premiums.  Consumers either did without insurance to potentially cover risks of catastrophes, or they paid a high premium (I did) and were happy to find a policy that might provide CatClaims coverage.  Increases in premium are negotiated or determined between insurance companies and the Insurance Commissioners.

     If high premiums are based on short-term underwriting risk, then when the risk does not happen some say that a kind of "regulatory estoppel"  may come into play.  Charging high premiums based on predictions of terrible things that do not come to pass, may thus seem to some to arguably violate a contract with catastrophe-at-risk America.  Under the vision some hold of such a contract, premiums will be charged when risks occur, and premiums will be lowered when risks are lowered.  On the other hand, if long-term predictions of great underwriting risk are what convinced State Insurance Commissioners to allow the insurance companies to charge the much higher premiums that have been charged for CatClaims insurance (when it is available at all), then the insurance companies have done what they were authorized by State Governments to do.  In that situation, insurance companies have only charged premiums based on predictions involving more than only one or two years' risk.  It would now be too soon to tell whether high premiums are too high, or even if premiums are too low.

    An insurance contract for the risk of CatClaims involves your interests and mine and the interests of everyone else facing those risks.  But an insurance contract is really negotiated between State Insurance Commissioners and your Insurance Company.  If as reported in the New York Times article, insurance companies are stating a $43 Billion profit for 2005 -- despite paying $61 Billion in CatClaims after 2005 -- then they are doing what they are supposed to do, which is make a profit.  And if the insurance industry estimates $60 Billion in net profit in 2006, then once again insurance companies appear from that fact simply to be successful  -- they are making a profit.  The real questions it seems are:  What are the Insurance Commissioners reporting, what are the Insurance Commissioners estimating, and on what basis of underwriting risk -- long-term or short-term -- did Insurance Commissioners allow higher premiums to be charged?  In the end, State Capitols may hold the answers to the questions worth asking on the basis of CatClaims insurance premiums.

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.

   

Proof and Experts in Bad Faith Cases

     A claim of Bad Faith in settlement under a First-Party auto coverage does not survive without supporting Affidavits or Expert Testimony or other Proof in Sehmann v. General Casualty Insurance Cos., 2006 WL 2883273 (Ct. App. Wis. Case No. 2005AP2108 Opinion Filed October 12, 2006) (subscription required), Public Access Site Provided by Court of Appeals of Wisconsin.

 

    The Court of Appeals of Wisconsin left no doubt about their holding:  "The defendant's [the insurance company's] affidavits show a reasonable process was used to arrive at its offers.  Cichowski [plaintiff-appellant] did not submit any affidavits as to what a more proper evaluation would have been, nor any expert opinions describing what process the defendant should have used instead.  Summary judgment was properly granted to General Casualty on this claim."  (Paragraph 10.)

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.

When a Primary Carrier Becomes Excess ....

                     Then the Excess-Once-Primary Becomes the Insured!
                                                            
    Federal District Judges have to decide State Law Questions.  It is not easy because they are not State Court Judges.  Still, what Federal Judges say usually counts for something.  Sometimes even in Insurance, if not always.  A recent example comes from the decision in the case of St. Paul Fire & Marine Insurance Co. v. Lexington Insurance Co., 2006 WL 1295408 (S.D. Fla. Case No. 05-80230-CIV Opinion Filed April 4, 2006)(subscription required), Download St. Paul v. Lexington (S.D. Fla. April 4, 2006).pdf.

    In St. Paul v. Lexington both insurance companies had what the Federal  District Judge called "virtually identical" provisions that made them both primary.  Nonetheless, in the space of about 6 pages the Federal Court made Lexington primary, and St. Paul excess.

    This involved St. Paul having a right of "equitable subrogation" against Lexington by which St. Paul stood in the shoes of the insureds "and assumes the rights of those insureds."  In other words, St. Paul became the insureds because of equitable subrogation.

    Then the Federal Court put this holding into action.  Lexington should have defended the lawsuit against the real insureds, said the Federal Court, "in good faith, and, at a minimum, to give notice to St. Paul as the following carrier of the critical aspects of the case as it progressed."  The problem there is that when equitable subrogation is involved, the case against the insureds is always over.    Which it was.

    When the case against the insured is over, there is, at a minimum, nothing to give notice about because nothing is happening.  Not notice to anyone, including a "following carrier" whatever that may mean.  Much less to give notice about "critical aspects" since those are not happening, either, of course.
   
    St. Paul v. Lexington is a Federal Court's honest answer with undoubtedly good intentions to address Florida Insurance Law Questions decided otherwise in other cases in Florida State Courts.  St. Paul and Lexington are doubtless bound by the result in the Federal case regardless.

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.

MOLD COVERS HOMES, HELD: INSURANCE DOES NOT COVER MOLD

                    Who Rebuilds and Repairs Where No Insurance Exists.

[THIS POST WAS ORIGINALLY PLACED ONLINE ON OCTOBER 11, 2006.  A POSTSCRIPT HAS BEEN ADDED THIS 16th DAY OF DECEMBER, 2006.]

    It is a fact that mold covers homes.  It is held under a standard Exclusion that insurance does not cover mold in Fiess v. State Farm Lloyds, 2006 WL 2505995 (Tex. Case No. 04-1104 Opinion Filed Aug. 31, 2006, answering this Question Certified by the Federal Fifth Circuit Court of Appeals) (subscription required), public access provided by Texas Supreme Court.

   The Fiess case in Texas involved a standard Exclusion used throughout the United States for "ensuing loss".  In a homeowner's policy, including the one in Fiess, water damage is ordinarily listed as a covered peril.  An Exclusion for "ensuing loss" excludes all coverage, however, for damage that ensues from an otherwise covered peril.  The modern homeowner's policy adds "mold" to the list of excluded ensuing loss.

    In Fiess, the Supreme Court held that mold damage is an excluded ensuing loss even though water damage is otherwise covered.  As a Federal Court recently held:  "After Fiess, even if the water damage is otherwise covered, resulting mold contamination is not."  Download gordon_publicly_issued_opinion_and_order_9_27_06.pdf

    The legal holding is clear.  The factual result is, well, a little more moldy and unclear.  The practical, if not legal question that remains, is:  Who will repair and replace when no insurance exists?

Postscript added Saturday, December 16, 2006:
The practical, if not legal question, that ended this post in October, 2006 still remains.  However, in the Fiess case itself, the Federal Fifth Circuit Court of Appeals affirms the District Court holding "that the Fiesses' Homeowners Form B (HO-B) policy did not cover mold contamination."   (Slipsheet at 1, Fifth Circuit Opinion Filed December 12, 2006.)  The District Court's holding and judgment of No Coverage now conforms to the Texas Supreme Court's "holding that the ensuing-loss provision did not provide coverage for mold contamination."  (Id. at 2.)

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.

"No" to Penalties For Overdue Payments.

   

    A penalties statute "must be strictly construed", as discussed in Saturday's and yesterday's posts.  Under that rule, a penalties statute imposing duties on an "insurer" does not apply to Nestle USA, Inc.  The case is  Bazile v. Nestle USA, Inc., ___ So. 2d ___, 2006 WL 2773806 (La. Ct. App., 3d Cir., Case No. 06-223, Opinion Filed Sept. 27, 2006)(subscription required), or use Louisiana Third Circuit Court of Appeals public site access.

 

    Nestle is a candy bar manufacturer.  The concurring opinion in Bazile also informs us that Nestle is self-insured.  If alleged bad acts are needed for Bad Faith, the allegations against Nestle in that case seemed to supply them:  Nestle was accused of manufacturing a candy bar that had worms in it.

    Regardless, all judges in this case agree that Nestle is not an "insurer" under the Louisiana Good Faith Duty Statute, La. Rev. Stat. 22:1220.   This is true even though Nestle failed to pay a settlement within 30 days after the agreement is reduced to writing, which the Louisiana statute penalizes.

    But the Louisiana statute only penalizes an "insurer" which violates certain Good Faith duties imposed by the statute.  One Good Faith duty involves paying a settlement within a time certain after there is a written settlement agreement, and that time certain is, as noted, 30 days.  As the Chief Judge wrote in an opinion which the other judges all joined:  "No insurance companies were involved in the suit."  Therefore the Louisana Good Faith Duty Statute does not apply to a case of Nestle.

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.

"Overdue" Liability Insurance Attracts Interest

       Standard "Overdue" Statute Empowers Third Parties to Collect Interest.

 Today's post picks up where yesterday's post left off:  In the ordinary Third Party situation, Bad Faith remedies are available to shift the excess liability to pay the injured claimant.  Bad Faith remedies exist to shift that liability from the insured-policyholder to the liability insurance company after there is an amount in "excess" of the liability policy limits in a judgment, or in a settlement, at the end of the underlying case.  There was nothing "overdue" there.  Now, there is.

    There is now a duty under the standard "overdue" insurance claim statute which the liability carrier of the defendant, the policyholder, owes directly to the injured claimant who has brought a claim or filed a lawsuit against the insured-policyholder.   It is a duty to pay interest from the moment that the injured person's claim against the insured-policyholder can be determined to be "overdue".  These are the views resulting from decision in the Kontowicz 2006 Case (Wisconsin Supreme Court site).

  In future cases in Wisconsin and in jurisdictions following the Wisconsin lead, liability insurance companies after this new Kontowicz case may pay a form of damages which never before existed, if they do not fulfill a duty they never had before:  Damages for statutory interest when they do not pay claims made or lawsuits filed against their policyholders and other insureds.

 In Kontowicz, interest under the Wisconsin statute was recovered beginning from an "overdue" date long before the injured claimant recovered any judgment against or settlement with the insured-policyholder.  The obligation to pay interest  is clearly a new duty.  It is a duty which must be fulfilled  toward injured claimants by  the liability insurers of the defendants sued  by the injured claimants where, and only where, the defendants purchased  liability insurance.  The defendants themselves do not owe this duty, whether or not the defendants purchase liability insurance.

    Interest-on-overdue-insurance-claim statutes, like the one involved in the Wisconsin case, make only insurance companies liable for "overdue" payments. Without saying "why not," the Wisconsin Supreme Court majority in the new Kontowicz case noted that the statutory liability on insurance companies is not the same thing as Bad Faith and, the majority also noted, again without saying "why not," the statute does not impose a penalty.

    If you know of statutes and cases in which liability insurance companies are required to pay interest on overdue claims to injured claimants, I would like to hear about them.  If this be an emerging view, it is important for policyholders, injured claimants, and their lawyers to know.

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.

Interest on "overdue insurance claims payments" extended to liability insurance in Wisconsin.

    Interest can be recovered for money unpaid, such as a bank loan.  There, interest compensates for the loss of use of money.

    Interest can also be recovered when the law provides that money should have been paid, but was not paid.  This is a penalty.  It is usually imposed under a statute, which is strictly construed.

    In either case, as compensation or as a penalty, interest is payable because the money due to you is treated as "overdue".  Recently, the Wisconsin Supreme Court construed a statute allowing interest on "overdue" insurance claims, Wis. Stat. § 628.46.  For the first time, in Kontowicz v. American Standard Insurance Co., 290 Wis. 2d 302, 714 N.W.2d 105, 2006 WI 48 (2006)(subscription required to access Northwestern Second), access public site at Kontowicz Wisconsin Supreme Court site, the Wisconsin high court applied this Wisconsin interest-on-overdue-insurance-claim statute to liablity or "Third Party" claims.  In Third Party Bad Faith cases, to put this holding in context, there is almost always a judgment or a settlement at the end of the underlying case which exceeds the liability policy limit.  The later Third Party Bad Faith case ordinarily is filed to shift the excess liability (where the insurance contract provides coverage for the policy limits) to pay the injured claimant, from the shoulders of the insured-policyholder to the liability insurance company because the excess would not have happened but for the Third Party Bad Faith by the insurance company, in basic terms.  There is nothing "overdue" there.

    Now, in Wisconsin, there is. 

    That is a very important departure from pre-existing law.  I will have more to say in future posts about the many other important issues this new case represents.

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.

Late Notice: Not good ground to support Total Denial of Coverage.

    Late notice is a coverage defense that ordinarily involves prejudice to the insurance company.  In some jurisdictions, the liability carrier must prove prejudice.  In other jurisdictions, late notice raises a rebuttable presumption of prejudice.  In cases involving a reubuttable presumption, legally there is a presumption of prejudice which the policyholder is free to rebut with evidence (and of course the insurance company is free to support with evidence).  Florida follows a presumption of prejudice following late notice, but that did not help the Commercial General Liability (CGL) carrier in Donovan Construction, Inc. v. Vacker, Essex Insurance Co., & Ocampo & Assoc's, Inc., 31 Florida Law Weekly D2440 (Fla. 4th DCA Case No. 4D05-4105 Opinion Filed September 27, 2006)(subscription required), free access available through the Fourth District Court of Appeal public web site  (click on opinions released September 27, 2006 and then follow the above case number).

    Donovan Construction and its president, Mr. Thomas Donovan, obtained a CGL policy from Essex.  Allegedly, a construction project on which Donovan was working incurred a modern problem:  Mold.

    The standard liability insurance policy generally requires two types of notice to the insurance company, although the opinion in the Donovan case does not discuss them.  First comes notice of occurrence likely to result in a claim that will involve the liability policy, in basic terms.  Without discussing whether the Essex policy required this type of notice in the Donovan case, the Fourth District wrote:  "On May 3, 2004, Thomas Donovan, directed his insurance agent, Associated Underwriters of Florida, to notify Essex of Vacker's 'possible' claims.  At no time did Essex contact Donovan regarding the potential claim nor, to DCI's [Donovan Construction, Inc.'s] knowledge, take any actions as a result thereof."

    The other type of notice required under the standard liability insurance policy involves notice of a claim in suit.  In other words, the other type of notice involves notice that an insured has been brought into a lawsuit.  On January 7, 2005 DCI was served with a complaint in a lawsuit filed as a result of the alleged mold.  Notice was again given, apparently:  "On January 25, 2005, AXA Corporate Solutions, DCI's other insurer [this is the only time AXA is mentioned in the appellate opinion], wrote to Essex advising them ....  Also on this date, Essex notified DCA of its denial of said claims.  DCI tendered the defense of this matter to Essex and requested that they be indemnified.  Essex refused to defend and indemnify" for many reasons including alleged late notice.

    The trial judge entered a summary judgment for Essex on the ground of no coverage due to late notice.  The Fourth District Court of Appeal reversed, holding that on the above and similar facts,  "there is a genuine issue of material fact concerning when DCI knew of the mold problems and whether it failed to timely notify Essex."

    Late notice is just not a particularly good ground to support Total Denial of All Coverage, as this new case reflects.

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.

Conduct of Injured Claimant and Attorney Held Relevant in Bad Faith Lawsuit.

    Yesterday a Florida appellate court held:  "The conduct of Capelli [the injured Claimant] and her attorney would be relevant to the question of whether there was any realistic possiblity of settlement."  This ground-breaking decision was unanimous and because it came from an appellate court, and in this particular case from a panel of distinguished jurists with a reputation for policyholder friendliness in Insurance cases, this decision will be carefully scrutinized and is likely to be given wide distribution.  The case is Barry v. GEICO General Insurance Co., 31 Florida Law Weekly D2467 (Fla. 4th DCA Case No. 4D05-2060, Opinion Filed October 4, 2006)(subscription required), which you can access for free at Florida 4th DCA Public Site by selecting this case no.

    This was a bad faith action filled by a policyholder, a Mr. Barry, against a liability insurance company for failure to settle a wrongful death case.  The Claimant was the Deceased's spouse, Ms. Ann Capelli.  Two of the many issues resolved in favor of the liability insurance company on this appeal from a Trial Court Judgment entered in favor of the carrier were involved in the appellate holding quoted above, that considering the totality of the circumstances in a Bad Faith case included considering the conduct of Ms. Capelli and her attorney.

    First, the insurance company attorney suggested in opening statement in the Bad Faith case that Ms. Capelli's attorney, who would be a witness in that case, would be biased because he stood to earn "$500,000" from the Bad Faith case.  The Trial Court sustained an objection "and gave a curative instruction that the specific fee amount was not in evidence.  However, the court determined that the attorney's financial interest would be a fair inquiry."

    The other ruling related to this holding came as a result of a jury question.  The jury wanted to know "'why Ms. Capelli's attorney didn't make GEICO aware of their appointment as her legal representative?'"  GEICO's Expert answered this question after being permitted to do so by the Trial Court.  (The particular witness retained by GEICO as an Expert in that case presented other questions resulting in this appeal.  They are all discussed at length in the appellate opinion.)  GEICO's Expert answered this jury question with an "'opinion ... is because he [Ms. Capelli's attorney'] was trying to manufacture a bad faith claim.'" 

    The appellate court' held that these and other incidents were not reversible error:  "None of the incidents individually are reversible, as they were either not error or were cured with instruction."  This is a ground-breaking decision which will be carefully reviewed by Claimants, Policyholders, Attorneys, and Insurance Companies who may want to litigate or prevent Insurer 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 IN AND FAMILIAR WITH THE PARTICULAR JURISDICTION AND ITS LAWS, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.

Bad Faith Does Not Depend on Being a Bad Person, and Being a Good Person is Not a Recognized Defense.

    Being guilty of Bad Faith does not mean that an insurance company was found guilty BECAUSE it was a bad person.  Sometimes maybe it has done bad things, but its Bad Faith conduct is what will lead to a Judgment against it for Bad Faith, as in this recent decision, which officially has not been released for publication and is subject to revision or withdrawal:  Johnson v. Tennessee Farmers Mutual Insurance Co., 2006 WL 2467134 (Tenn. August 28, 2006), which you can access at Tennessee Supreme Court public site .

    Mr. Johnson had an auto policy which provided him with stated liablity provisions and with Uninsured Motorist Coverage.  He filed suit after a judgment was entered against him for more than his liability limits, contending that the excess judgment was caused by his insurance company's refusal to settle.  He obtained a verdict of Bad Faith against the insurance company in the trial court (Circuit Court), which was reversed by the intermediate appellate court (Court of Appeals), and which was, finally, reinstated against the insurance company by the Tennessee Supreme Court. 

    While the underlying liability case was pending against Mr. Johnson, the auto insurance carrier settled Mr. Johnson's U.M. claim and a U.M. claim made by the Plaintiff in the underlying case also.  The carrier paid policy limits "to each policyholder," said the Supreme Court.  At the trial of the Bad Faith claim based on the carrier's refusal to settle the underlying liability case against Mr. Johnson, the Circuit Court allowed evidence of the U.M. payment with a cautionary instruction to the jury that the evidence was allowed "'only for you to consider, along with everything else as it relates to circumstantial evidence, as to whether or not it was bad faith on failure to pay the liability claims.'"  The Circuit Judge further instructed the jury, apparently at the conclusion of all the evidence, that the insurance company's payment or delayed payment of Mr. Johnson's U.M. claim does not mean that the insurance company was guilty of Bad Faith in failing to pay the liability claim against Mr. Johnson.

    The Tennessee Supreme Court approved these instructions, held that they "correctly instructed the jury," reversed the Court of Appeals, and reinstated the Bad Faith Judgment against the insurance company that Mr. Johnson obtained after he received a favorable jury verdict in the Circuit Court.

    In short, being a bad person was not the standard of legal liability for Bad Faith in Mr. Johnson's case, according to the decision (tentatively, at present) reached on August 28, 2006, link provided above to the public site.

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.