Claims and Bad Faith Law Blog

Primary Carrier Good Faith: ....

                  "It's Not Just For A Policyholder Any More!"  Is It?

     A new case decided on Valentine's Day, 2007 forges new law and also  presents an apparent new conflict in Florida Insurance Law:  Progressive American Insurance Co. v. Nationwide Insurance Co. (Fla. 1st DCA Case No. 1D06-2159, Opinion Filed February 14, 2007).   That short case  -- the entire decision is concisely printed in 3 paragraphs -- involves two Liability Insurance Companies, both with a duty to defend except for one thing.  When the Court compares their "other insurance" clauses, one Insurance Company's Policy makes it "excess" by comparison while the other Policy is "primary" by comparison.

     On these basic facts, the conclusion in this decision is the distinct minority position across the United States.  This issue has been addressed many times by Courts, parties and their counsel including me over the years.

     Back to the new decision at hand.  In it, a distinguished panel of Florida's First District Court of Appeal applied a widely held rule of what is called "equitable subrogation".  Under this universal rule, an Excess Carrier pays indemnity under the Policy it issued to the Policyholder and thereby gets to stand in the shoes of the Insured-Policyholder.  That means that the paying Excess Carrier gets the ability to assert the same rights against, and to claim the same obligations from the Insured's Primary Carrier, that the Insured-Policyholder has.

     That includes the right if any that the Insured-Policyholder has to claim that the Primary Carrier did not act in Good Faith toward the Insured.  The Court in the new decision ended with a conclusion that is very different from this universal rule, however:  "Therefore, [the Primary Carrier] owed [the Excess Carrier in this case] a duty of good faith."

     The vast majority view to the contrary is discussed at length in, for example, Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith Ch. 6 and Ch. 7 (West Publishing Co. 2d Edition 1994, 2007 Supplement in Process).  I represented a Primary Carrier in an earlier case with a different result and an apparently conflicting decision by the same First District Court of Appeal.   The conflicting holding is not cited in the new decision, the oldest citation in it being to a case decided in 1985:  "We further find [the Primary Carrier's] remaining claim that [the Insured's Excess Carrier] owes a direct duty to [the Primary Carrier] not cognizable under Florida law."  Hartford Accident & Indemnity Co. v. Travelers Indemnity Co., 554 So. 2d 559, 560 (1st DCA 1989)[emphasis added], review denied, 564 So. 2d 1086 (Fla. 1990).

     It will be interesting to see how the First District Court of Appeal and other Florida Courts resolve the apparent conflict.  It will be significant whether Florida Insurance Law stays in the majority column or joins the tiny minority on this narrow but national issue.

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Removal Yes, But it Sticks Only ...

                                ...  When It Is Proof Positive!

     The Defendant that claims fraudulent joinder of other local Defendants faces the burden of putting on proof.  There must not only be allegations and assertions of fraudulent joinder, but there must also be proof that the Plaintiff sued (joined) those local Defendants fraudulently.

     This means that there must be proof that the Plaintiffs in a Hurricane Katrina CatClaim Case, for example, sued local adjusters for Bad Faith under Louisiana law, but that the only possible outcome could not result in the Plaintiffs recovering Damages against the local Defendants who were sued only for the purpose of defeating the diversity-of-citizenship jurisdiction of the Federal Courts.

     Putting on no proof falls short of meeting this burden, said the Federal Judge granting Plaintiffs' Motion to Remand back to State Court in Thomas Matherne, Sr. & Anastasia Matherne v. Allstate Insurance Co. (E.D. La. Case No. 06-8120, Opinion Filed January 3, 2007).
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Partial Payment of Claims ... UPDATED!

     This post updates the post here on January 12, 2007 regarding:

Punitive Damages, Katrina and the Insurance Contract:  Lessons Revisited and a Tale Told in Pieces or in Parts.

   

     On January 31, 2007 Federal Judge L.T. Senter, Jr. entered an Order reducing the Punitive Damages Assessment in the Broussard case.  The Federal Judge reduced the Punitive Damages assessment in that case to 40% of what the Jury assessed, reducing the assessment from $2,500,000.00 to $1,000,000.00.  Here is a link to the Order:  Norman J. Broussard & Genevieve Broussard v. State Farm Fire & Cas. Co. (S.D. Miss. Case No. 1.06CV6, Order entered January 31, 2007) .  For another report on this same decision, go to the February 1, 2007 post on Insurance Claims And Issues.     

     The Federal Court's ruling on January 31, 2007 adds to the facts coming in about the bases for this lawsuit, about the Bad Faith allegations in it, and about the reasons behind the Jury's finding of entitlement to Punitive Damages under Mississippi law.

     The Homeowner's Policy involved in the Broussard case was "an 'all perils' policy in the case of the dwelling and a 'named peril' policy as to contents, i.e., windstorm."

     Second, the initial investigation by the Homeowner's Insurance Company showed clearly that the Policyholders' home "was reduced to a slab by Hurricane Katrina" and that the damage was caused more by flood than by wind, the Federal Judge wrote.

     The Insurance Company "did not obtain any expert opinion on this particular loss."

     Rather than obtaining any expert opinion, as the Federal Court noted, the Insurance Company instead established a procedure for homes reduced to nothing remaining except the slab, a procedure which it applied in the Broussard case.  The subject procedure was to use "the debris line" and declare that in the instance of only a slab remaining, all damage would be presumed to be caused by FLOOD which was NOT a covered loss, thereby leaving it to the Policyholders to bear the burden of proving damages caused by a covered loss such as WIND.

     Although not repeated at any length in the January 31, 2007 Order, the Federal Court had PREVIOUSLY RULED in that same case that the burden of proof was INSTEAD on the Insurance Company to prove at Trial in Court that all or part of the damages claimed by the Policyholders were EXCLUDED.

     The Homeowner's Insurance Company "relied on its flood exclusion to totally deny the claim."

     The Federal Judge held that there was clear and convincing evidence in the Broussard case supporting a finding by the Jury of entitlement to Punitive Damages.  There was in other words clear and convincing evidence, the Federal Judge wrote, "that Defendant acted in such a grossly negligent way as to evince willful, wanton, or reckless disregard for the rights of the Plaintiffs."

     That ruling affirmed the issue of Mr. and Mrs. Broussards' entitlement to Punitive Damages under the facts of this case.  As to the amount of Punitive Damages, to $1,000,000.00, the Mississippi Federal Court reduced them as noted, doing so both under Mississippi State law and under "due process considerations under the United States Constitution."

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No Expert Invites Bad Faith Claim, You Make The Call.

     In a Hurricane Katrina - related First-Party Bad Faith Case, a Federal Judge recently directed a verdict on Insurance Coverage and awarded the full Policy Limits as Compensatory Damages.  The case is Norman J. Broussard and Genevieve Broussard v. State Farm Fire and Casualty Company (S.D. Miss. Civil Action No. 1.06CV6).   The Federal Court then let a Jury decide the issues of entitlement to Punitive Damages and amount of Punitive Damages.  The Jury assessed $2,500,000.00 in Punitive Damages.  More facts of this case, reported and coaxed from the available reporting and the Court file online, were discussed at length in a post here on January 15, 2007.

     As of January 31, 2007, the Federal Judge reported more facts in an Order entered that day.  In it, the Federal Court reduced the Punitive Damages assessment to $1,000,000.00, or 40% of what the Jury assessed.  Here is a link to the January 31, 2007 Order:  Norman J. Broussard & Genevieve Broussard v. State Farm Fire & Cas. Co. (S.D. Miss. Civil Action No. 1.06CV6, Order entered January 31, 2007).

    In denying all Coverage and before the Bad Faith Claim against it, the Insurance Company's investigation concluded that Mr. and Mrs. Broussard's "home (which was reduced to a slab by Hurricane Katrina) 'was more damaged by flood than wind.'"  (Page 2 of Order.)  In other words, wind caused some of the damage, but not all.  Yet, as the Federal Court pointed out, the Insurance Company denied all Coverage and among other things:

The Defendant did not obtain any expert evaluation on this particular loss.  Defendant used the debris line as its sole investigative guide in spite of the probability (as assessed initially) that some damage occurred from a cause other than flood.

Id.  [Emphasis added.]  The lesson is easy to state, but perhaps it is not so easy to learn.  Even if the result is not going to be different, the chances of defeating a Bad Faith Claim are greatly increased if the Coverage determination is supported by independent testimony of an Expert in the first place.
 

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