Claims and Bad Faith Law Blog

Health Insurance Premiums Control Proposals. It's the Economy Controls Everything.

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   Anthem Blue Cross, located in California, raised its Premiums by "up to 39%," it has been reported.  In actuality, Anthem told the Los Angeles Times that the average increase for its  Policyholders is "closer to 25%."  Noam Levey, "Health Insurers Take Heat For Rise in Profits" (Los Angeles Times Online, Thursday, February 11, 2010).

   Asked to justify its rate increases, Anthem responded that the increases were based largely on the increasing costs of Medical Care.  (Anthem has since delayed the effective date of its Premium Increases by 2 months or until May 1, at the request of the California Insurance Commissioner who intends to hire "independent actuaries" to examine the Premium Increases.  Duke Helfand, "Anthem Blue Cross Plans to Go Ahead With Rate Hikes in California" (Los Angeles Times Online, Wednesday, February 24, 2010).)

   In response, Secretary of Health and Human Services Kathleen Sebelius ended her silence on Healthcare Reform and issued an (undated) report pointing out a couple of things:  (1) Increases in Health Insurance Premiums in 2009 "are five to 10 times larger than the growth rate in national health expenditures" and (2) executive payments and profits of Health Insurance Companies both increased dramatically in 2009, including at the parent company of Anthem, WellPoint Inc. which is based in Indianapolis, Indiana.  Secretary Sebelius reported that executive payments to the "top executives" at the 5 largest Health Insurance Companies in the United States were paid "up to" $24,000,000.00 or $24 Million apiece while the same 5 largest Health Insurance Companies increased their profits 56% in 2009 from 2008, for total 2009 profits among them of  $12,200,000,000.00 or $12.2 Billion.  See also James Rowley and Nicole Gaouette, "Obama to Post Health Plan as Sebelius Renews Attack on Insurers" (Bloomberg.com, Friday, February 19, 2010).

   It seems to be overlooked or minimized in all of these reports that Anthem Blue Cross in California issued Health Insurance Policies to individuals, not to employers.  Most certainly, that fact has not been overlooked by Anthem's individual Policyholders in California who received Premium Increases.  Their leverage with their Health Insurer is nowhere near as great as the leverage that large employers can bring to bear when Health Insurance Companies try to increase their Premiums.  See, for example, Duke Helfand, "Consumers Who Buy Individual Health Policies Feel Trapped/They Have Few Options Other Than Dropping Coverage as Insurers Raise Rates and Slash Benefits.  Insurers Blame the Soaring Cost of Medical Care and the Churn of Customers in the Individual Market" (Los Angeles Times Online, Friday, February 19, 2010).

   Perhaps, with many employers dropping Health Coverage as a benefit for their employees in response to the unhealthy state of the economy and the consequent desire to cut costs at all costs, it is possible that "millions more workers [will be] forced to buy individual policies".  Id. 

   This "possibility" does not seem like much of a "probability," however.  "Companies care about how much total compensation they pay.  Rising health costs generally come out of worker incomes, not company profits."  David Leonhardt, "Economic Scene/On Eve of Health Meeting, Big Questions Still Linger" p. A1, col. 1 (New York Times Nat'l ed., Wednesday, February 24, 2010).

   The choice that fired Employees are far more likely to face, then, is a difficult choice between two sets of very High Health Insurance Premiums:  Premiums for individual Health Insurance Coverage, or Premiums for COBRA, the Federally required extension of Health Insurance Benefits for a certain time in exchange for increased Premiums to those who have lost their jobs and thus lost their Health Insurance.  In the end, it's the economy that controls here.  And it's the economy that will not be ignored if success is a desired outcome.

   The Administration has announced a response to this situation, after highlighting Anthem's increased Premiums (without focusing on the fact that Anthem's Premium Increases are for individuals, who are largely left out of the pending Healthcare legislation in Congress) and after reporting on profits and executive pay at Health Insurance Companies (which issued Plans and Policies to employers, not to individuals like Anthem's Policyholders).  In the face of Anthem's announced Premium increases, the Administration proposes Federal Regulation of the Health Insurance Industry.  Its proposal includes a proposed Health Insurance Rate Authority which would pass on Health Insurance Premium increases, and expanded authority to be given to the Secretary of Health and Human Services "to oversee, and to potentially block, rate increases that are deemed unfair."  Michael D. Shear and Dan Balz, "Obama Proposal Targets Insurance-Rate Increases" (Washington Post Online, Monday, February 22, 2010).

   This is Mom-and-Apple-Pie kind of stuff.  In the face of perceived unfair Premium Rate Increases, the Administration's proposal seems reasonable in response.  It is the additional, unreported feature of a proposed Federal takeover of all Health Insurance Regulation that remains to be seen, and examined.

   Along with the economy.

Please Read The Disclaimer. 

Postscript of Sunday, February 28, 2010:

Thanks to the Los Angeles Times columnist Michael Hiltzik who points out in his column published today, that over the last two (2) years, WellPoint's average Health Insurance Deductible has risen by 20%.

Again, Please Read The Disclaimer.

  

 

Residential Forclosure Mediations: More Proposed Mortgage Loan Modificiations, HAMP.

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   This is an update on news affecting the Residential Foreclosure Mediation Tools that are discussed in the post here on February 25, 2010 and which are discussed on the Insurance Claims and Issues Web Log, under the Category of "Mediation".  See in particular the posts there of January 27, 2010; January 29, 2010; and February 8, 2010.

   Major changes to the Home Affordable Modification Program ("HAMP") are under discussion in Washington, D.C.  There is a proposal being considered by the current Administration which would, if adopted, modify HAMP and thus restrict the availability of Foreclosure Lawsuits in two ways:

1. Lenders would henceforth be prohibited from filing new Foreclosure Lawsuits until screening of the homeowners'-borrowers' application to HAMP was complete, whereas at present there is no such impediment to filing for Foreclosure; and
2. Lenders would be required to stay or abate pending Foreclosure Lawsuits against homeowners-borrowers who are participating in a trial modified repayment plan.  At the present time, Lenders are required to stay or abate their pending Foreclosure Lawsuits only when the Defendants are in a permanent HAMP modified repayment plan (of which there are relatively very few since HAMP began).

Dawn Kopecki, "Obama May Prohibit Home-Loan Foreclosures Without HAMP Review" (Bloomberg. com, Thursday, February 25, 2010).

   This proposed modification to HAMP could, if adopted, have major effects on the roughly 2,820,000 homeowners who are currently Defendants in Foreclosure Lawsuits, and the estimated 4,500,000 homeowners who are predicted to become Foreclosure Defendants this year, as well as the total set of 12,000,000 likely-to-potential Residential Foreclosure Defendants.  "About 89 percent of outstanding residential mortgage loans are covered by the voluntary HAMP program."  Id. 

   The proposal to modify HAMP could, in the end, have the effect of a ban on Residential Foreclosures unless homeowners-borrowers have been rejected by HAMP.  See id.  

Please Read The Disclaimer.

Residential Foreclosure Mediation Tools: HAMP.

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   One of the tools available to Mediators in Residential Foreclosure Mediations is the Home Affordable Modifications Program offered by the Federal Government.  To find out if homeowners-borrowers qualify, here is a link to the first step to find out:  Making Home Affordable.GOV.

More Residential Foreclosure Mediation Tools are discussed on the Insurance Claims and Issues Web Log, under the Category of "Mediation".  See in particular the posts there of January 27, 2010; January 29, 2010; and February 8, 2010.

Please Read The Disclaimer.

SEC's Settlement of Looming Loss, er, Trial of BOA Case, Approved ...

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   ... "Reluctantly," says the Federal Judge.

   This updates a post here on February 18, 2010.  The SEC does not give up on trying to gain approval of its proposed settlements.  This time, the SEC received reluctant Federal Court approval of its most recent settlement proposal in the case it filed against Bank of America.  The Federal Judge wrote at the outset of his Order that he was "tempted to quote the great American philosopher Yogi Berra:  'I wish I had an answer to that because I'm getting tired of answering that question.'  However, after full consideration, the Court reluctantly grants the motion, on the terms specified below."  Download Securities and Exchange Comm'n v. Bank of Am. (SDNY Case Nos. 09 Civ 6829 and 10 Civ 0215, Opinion Filed 02.22.10 Approving Settlement), attached Official Slipsheet Opinion at 1-2.

   BOA apparently increased the amount it was willing to pay, to $150 Million from $33 Million.   The other terms of previous settlement proposals appear to be essentially unchanged.  See, e.g., Greg Farrell, "Judge Approves BofA Settlement With SEC" (Financial Times Online at FT.com, Monday, February 22, 2010); Louise Story, "Judge Accepts S.E.C.'s Deal With Bank of America" (New York Times Online, Monday, February 22, 2010), in print on p. B1, col. "4," New York Times Nat'l ed., "Business Day" Section, Tuesday, February 23, 2010.

   The increase from $33 Million to $150 Million was, however, due to BOA's successful renegotiation of the amount to include both cases, 09 civ 6829 which the Court called the "Undisclosed Bonuses" case, and 10 civ 0215 which might be called the "Undisclosed Losses" case.  See Download Securities and Exchange Comm'n v. Bank of Am. (SDNY Case Nos. 09 Civ 6829 and 10 Civ 0215, Opinion Filed 02.22.10 Approving Settlement), at 11. 

   It is possible to read the 15-page Order of the Federal Judge, and come away with the impression that he reluctantly accepted the latest iteration of this SEC-BOA settlement as the best that the SEC could do in this case.  It would have been worse if the SEC had been forced to go to Trial as scheduled beginning on Monday, March 1, 2010, and lost at Trial, or attempted to voluntarily dismiss its case against BOA before or during Trial.

Please Read The Disclaimer.

 

Breach of Florida Implied Warranty of Good Faith and Fair Dealing ...

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  ... Held:  Statutory Bad Faith or Nothing.  Count Dismissed.

   In the midst of a District conflict, a U.S. District Judge in the Southern District of Florida held with the majority of decisions in that District, and with previously uncontradicted Florida State Law, that any alleged Breach of Implied Warranty of Good Faith and Fair Dealing under a First-Party Insurance Policy in Florida is actionable as Statutory Bad Faith in Florida, or not at all:  Download Portofino South Condominium Ass'n v. QBE Insurance Corp. (S.D. Fla. No. 09-81041-Civ, Opinion Filed September 24, 2009), attached Official Slipsheet Opinion at 6-7.  The District Judge in that case granted the Defendant First-Party Insurance Company's Motion to Dismiss a Count for alleged "Breach of Implied Warranty of Good Faith and Fair Dealing".

Please Read The Disclaimer.

Fiduciary Duties: Selling "Fiduciary" Name Like a Box of Chocolates ...

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... "you never know what you're going to get."

   Reportedly, the current "financial overhaul legislation" is hung up on a name.  A bill passed by the U.S. House of Representatives would require "brokers" to be called "fiduciaries," but would not impose Common Law or other Statutorily recognized Fiduciary Duties upon them.  See Tara Siegel Bernard, "Struggling Over a Rule For Brokers" p. B1, col. 6 (New York Times Nat'l ed., "Business Day" Section, Tuesday, February 16, 2010).

   Or maybe you will get nothing at all.  The Insurance Industry reportedly is adamant in totally opposing any Fiduciary designation for Brokers of any kind, at all.   They are apparently concerned that Brokers selling Annuities may have to disclose their financial interests in selling those products if they are "Fiduciaries" with a Duty to give their Policyholders' interests at least as great consideration as they give their own.  See id.

Please Read The Disclaimer.

"Appropriately Tailored": BOA Says Compensation Clothes Untouchable, Objects to Settlement.

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This updates a post here on February 9, 2010 which, in turn, brought up to date a continuing story told in many posts in 2009, some of which are listed there.

   The Securities and Exchange Commission filed civil fraud charges against Bank of America.  The alleged basis of the lawsuit was BOA's silence to its Shareholders about huge bonuses and even greater losses incurred by Merrill Lynch but not publicly announced by Merrill at the time of BOA's proposed acquisition of Merrill two years ago.

   The New York Attorney General filed a separate civil fraud lawsuit after the SEC announced its latest proposed settlement in the SEC's Federal case against BOA.  The New York AG's lawsuit includes charges of fraud upon the Federal Government for not telling the Federal Government the same things that BOA allegedly did not tell its Shareholders -- all the while applying for Federal Taxpayer Money from TARP.  BOA and two of its former Officers were named as Defendants by the New York AG.  In contrast, the SEC declined to include BOA's former CEO and CFO as Defendants in its previously filed lawsuit.  In fact, the Federal Judge who rejected a previous failed attempt by the SEC to settle with BOA why the SEC seemingly went out of its way to attempt to exonerate the Officers from charges of wrongdoing and did not sue them.

   The SEC has asked for Federal Court approval of another  proposed settlement attempt.  

   At a Hearing last week, the Federal Judge asked to approve the latest settlement proposal had questions, again.  One of his questions is now reported as asking whether BOA would agree to the Court and the SEC having "a role in the selection of the bank's outside compensation consultant."  BOA's lawyers have sent the Judge a letter saying, in effect, 'no.'  BOA's lawyers wrote to the Judge that BOA's pre-existing compensation scheme for shifting Shareholder dollars to Executive Compensation is "'appropriately tailored,'" according to Louise Story, "Bank of America Opposes Judge's Proposal for an Outside Pay Consultant" p. B4, col. 1 (New York Times Nat'l ed., "Business Day" Section, Thursday, February 18, 2010).

   How is that tailoring going?  Time will tell.  The Federal Judge reportedly will decide by Monday, February 22, 2010 whether to approve or reject the proposed settlement.  The SEC's case, which it has repeatedly attempted to settle without going to Trial, is scheduled to go to Trial otherwise on March 1, 2010.

Please Read The Disclaimer.

"Streamlining Health Insurance Paperwork" to Compromise Covered Claims?

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   Hospitals are having trouble making money.  Funding for statutory mandates to provide treatment to poor people in hospitals, such as in emergency rooms, is apparently in limbo with the pending Federal Healthcare Reforms.  See, for example, the post on February 9, 2010 on Insurance Claims and Issues Web Log.

   Health Insurance Companies are reportedly making it easier for the billing departments of physicians' offices to check on whether a prospective patient has Health Insurance Coverage which of course makes it more likely that the physicians' later bill will be paid by someone, and also to check on whether a Health Insurance Claim for a given patient's procedure has been covered or Denied by the Health Insurer.  In the Fall of 2009, a number of Health Insurers acted in together to offer one Internet "portal" to physicians and hospitals in Ohio in a pilot project, so that the physicians' and hospitals' billing departments might check on patients' Health Insurance Coverage status.

   Last Fall's pilot project in Ohio is now reportedly being extended to New Jersey.  "Doctors will be able to check instantly whether a patient has coverage and be able to track the status of the claims."  Reed Abelson, "New Jersey is Added to Trial Program to Streamline Health Insurance Paperwork" p. B4, col. 1 (New York Times Nat'l ed., "Business Day" Section, Thursday, February 11, 2010).  New Jersey Health Insurance Companies and Plans reportedly include Aetna, Amerihealth New Jersey, Cigna, Horizon Blue Cross and Blue Shield of New Jersey, and United Healthcare.  Id.

   Physicians quoted in the linked newspaper article are happy with what they see as a "better" system.  Id.  Recall, however, that anecdotal evidence from the Kansas Insurance Commissioner has it that 50% of Health Insurance Claim Denials are overturned on intra-Company appeals in that State.  See the post on Insurance Claims And Issues Web Log on February 11, 2010.

   To put it another way, based on the Kansas experience, Health Insurance Companies and Plans change their minds and provide Coverage for previously denied Health Insurance Claims over half the time when the patients appeal the denial.   Suppose a billing department employee at a physicians' office or at a hospital accesses the portal to track the 'status' of Coverage for that patient's Claim, before the patient appeals the Denial?  She or he would see that the Claim was Denied, that there is no Coverage according to the information in the computer, right?  Billing department employees are paid to see that medical bills are paid.  Their job description demands that the identity of the party paying the bill is less important than seeing to it that an unpaid medical  bill is paid.

   Who among us has been to a physicians' office or to a hospital in recent years, Heaven forbid, and has not received a medical bill from the billing department announcing that the Health Insurer has paid nothing on their bill and the patient is still responsible for paying 100% of it?

   Does it not seem likely that the same employee, armed with the apparent knowledge that a Health Insurance Claim has been Denied -- according to the up-to-the-minute status of 'Coverage' revealed by the Health Insurance Company -- will ask or suggest that the patient negotiate a payment scheme so that the bill gets paid?  Perhaps a shared payment from the patient and the Health Insurer, to the vendor?  If so, the vendor may end up being paid more than if the patient defaulted on the bill, but less than the face amount of its bill, while the patient may end up with less than the full Coverage to which the patient may be entitled and be out money the patient never had to pay, and the Health Insurer -- which conveniently supplied the Internet information to the vendor in the first place -- pays less than its full Coverage for the procedure?

   It is understandable why physicians and their billing departments can be quoted as saying that it is "better" to track their patients' Health Insurance Coverage status online, regardless of which Health Insurer issued a Policy or Plan which should provide Coverage to the patient.  It is "better," for them that seek to get their bills paid.  It may also be "better" for the Health Insurers.

   It is decidedly NOT "better" for the patient.  Time could be much better spent by Health Insurers than by providing Internet portals to vendors to track Insureds' Health Insurance Coverage and Claims.

Please Read The Disclaimer.

  

Mediating Change: Parties Write-Their-Own Settlement Agreements.

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   A post in this space on Monday, February 8, 2010 explored "Mediation With Authority, Including Mediating Insurance Issues."  There is also a related post on Insurance Claims and Issues Web Log.  Both are based on the author's recent experiences and involvement in the Insurance Law Committee Seminar of the Orange County (Florida) Bar Association and attendance at Mediation Seminars sponsored at the Midyear Meeting in Orlando of the American Bar Association.

  The author learned that Mediators in training in Florida at this time are currently taught to leave all the writing of the parties' Mediation Settlement Agreement to the parties, if they reach agreement.  Florida Mediators are no longer expected to draft the parties' Agreement with their input, and the input of their lawyers of course.

   To the contrary, Mediators in Florida will now be expected NOT to write the Mediation Settlement Agreement, to prevent further lawsuits in addition to those which have recently been filed in Florida cases where Mediators were asked in basic terms about provisions included in, or left out of, the parties' Mediation Settlement Agreements (although no such case is known in which a Mediator was held liable in any way).  

Please Read The Disclaimer.

 

Mr. Paul Volcker Updates the "Volcker Rule".

   

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   This updates a post on Insurance Claims and Issues Web Log of January 25, 2010 and a post here, also on January 25, 2010.

   There is no more authoritative Update of the "Volcker Rule" than to hear the words of the man himself.  The "Volcker Rule" was coined by President Obama when he announced his support for Mr. Paul Volcker's ideas to, among other things, separate proprietary trading in which the client is not affected by the outcome of the trading, from commercial banking.

   Organizations which would potentially be affected include Goldman Sachs and JP Morgan Chase, both of which "have proprietary trading desks and private equity units."  Chrystia Freeland and Francesco Guerrera, "'Volcker Rule' Gives Goldman Stark Choice" (Financial Times Online at FT.com, Friday, February 12, 2010).  In an interview for the Financial Times piece, Mr. Voelcker is quoted as saying:

The implication for Goldman Sachs or any other institution is, do you want to be a bank?  If you don't want to follow those rules, you want to go out and do a lot of proprietary stuff, fine, but don't do it with a banking license....  Don't expect the support you would get from being a bank within the club of insured deposits and access to the Federal Reserve and all the loving attention you get as a bank organization....  [However, you would not] escape from all oversight and regulation."

Please Read The Disclaimer.

New York Attorney General Files Fraud Complaint, SEC Exonerates, Caves.

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   As previously posted here on February 9, 2010, the New York Attorney General has filed a Complaint containing Fraud allegations against Bank of America, its former Chief Executive Officer Kenneth Lewis, and its Chief Financial Officer Joseph Price, and the Federal Securities and Exchange Commission has taken the opposite tack.  The SEC has attempted to exonerate Mr. Lewis and Mr. Price and the remaining Officers and Directors of BOA upon the same set of operative facts.

   Merrill Lynch was going to pay huge bonuses to its employees while it was in talks with BOA to take over Merrill Lynch.  More than that:  Merrill was facing huge losses that were generally unknown at the same time.  BOA's Mr. Lewis and Mr. Price, and perhaps others, allegedly knew.  BOA did not tell its shareholders, who would end up paying the price.  More than that, even:  Allegedly BOA and its Officers did not tell the Federal Government which was preparing to provide BOA with TARP -- Federal Taxpayer -- money.

  In contrast to the SEC, the New York Attorney General has taken the view that this is wrong and has made a civil claim for Fraud.  Here is the Complaint filed by the New York A.G.'s Office on Thursday, February 4, 2010:  Download Complaint.People of New York v. Bank of America, Kenneth Lewis, and Joseph Price (New York Sup. Ct., Filed 02.04.10).  Here is the New York Attorney General's Press Release of the same date describing the Fraud allegations.

Please Read The Disclaimer. 

Credit Insurance Rescission: Remedy in the Great Recession.

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   Rescission is an equitable remedy made available by State Statutes.  It is available in particular for Insurance products when certain statutory requirements have been met.  Rescission Statutes in the States generally follow the same script, with much the same language.  Florida's Insurance Rescission Statute is a good example:  Fla. Stat. § 627.409 (2009).

   One of the requirements which a party invoking the remedy of Rescission under the Florida  Rescission Statute must meet, is to show that "[i]f the true facts had been known to the insurer pursuant to a policy or other requirement," then the Insurance would not have been issued, or if issued, it would not have been issued in as large an amount, or a larger Premium would have been charged if the Insurance would have been issued anyway.  Fla. Stat. § 627.409(1)(b) (2009).  [Emphasis added.]

   One of the two kinds of Credit Default Swaps is Credit Insurance.  See, for example, the post here on December 24, 2009.  The party issuing Credit Default Swaps -- and AIG for example reportedly issued many of them -- should, it seems, be entitled to claim the status of an Insurer.  Further, the issuing party should it seems be allowed to invoke the applicable State Rescission Statute accordingly, to rescind the CDS's it issued but would not have issued had it known "the true facts ... pursuant to a ... requirement".

   Inasmuch as many Credit Default Swaps qualify as Credit Insurance, making the party issuing them an "insurer," why should these "insurers" not pursue their available Remedies at law, in Equity ... or by Statute?

Please Read The Disclaimer. 

UPDATE: SEC - BOA Proposed Settlement II; Unsung Fiduciary Duties, Again.

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   The Securities and Exchange Commission and Bank of America previously tried to settle SEC's claims against BOA, which were filed as a result of BOA not informing its shareholders that BOA acquired Merrill Lynch knowing that Merrill Lynch was paying out huge bonuses.  The BOA - SEC first try at settling was not approved by the United States District Court in which the SEC Complaint was pending.  The reasons are examined at length, with links to the Opinion, in the post here on September 14, 2009.  Other posts on the same proceedings include August 13, August 25, September 13, and September 22, 2009 ("Stay tuned.  The SEC is unlikely to attempt to try this case.  Based on their past record, the SEC is much more likely to try again to settle.").

   In basic terms, the first settlement proposal was not approved for two major reasons addressed in the Opinion of the United States District Court.  One such announced reason was that the BOA Shareholders would have to pay the penalty to which BOA and the SEC agreed as a part of their settlement.

  The other reason addressed by the Court in its Opinion was that no charges were made against the individual officers of BOA who engaged in the conduct that the SEC alleged warranted penalties against BOA.  Instead, under the first settlement proposed by the SEC and BOA, BOA was allowed to continue to blame its lawyers for its conduct and the Court wondered aloud why the lawyers should not then pay the penalty if that was true.  See the post here of September 14, 2009.

  The SEC and the BOA are at it again.  On February 4, 2010, they filed a proposed "Final Consent Judgment As To Defendant Bank of America Corporation," along with their apparently joint "Statement of Facts" that they relied on to reach their second, proposed settlement:  Download Proposed BOA Final Consent Judgment With Statement of Facts (Filed 02.04.10 in SDNY Case No. 09civ6829).  (Their "Statement of Facts" begins on page 19 of the linked pdf.)  BOA and the SEC also filed Memorandums of Law that day.

   A Hearing was scheduled on the proposed settlement for Monday, February 8, 2010, according to the Online Docket of this case.  As of the time of this post, no known Order has been entered as yet.

   In the interim, the New York State Attorney General has filed a Complaint against both Bank of America and its former Chief Executive Officer, Mr. Ken Lewis, and its Chief Financial Officer, alleging misrepresentation, among other things, based upon the same set of operative facts.  The allegations and background of the Complaint filed by the New York Attorney General are generally explored by Zachary A. Goldfarb and Tomoeh Murakami Tse, "N.Y. Attorney General Cuomo Charges Bank of America With Fraud" (Washington Post Online, Friday, February 5, 2010).

Please Read The Disclaimer.

Mediation With Authority, Including Mediating Insurance Issues.

  

Author's Note: 

After writing this post, the author first became aware that at least one entrepeneur is aggregating these posts, along with others, and using them to sell advertising.  The author has never authorized anyone to sell advertising in connection with any posts on this Web Log.  There has never been a charge or fee of any kind for any post that I have ever written on any Web Log, including my own.

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   The settlement authority held by the Insurance Company Representative at a Mediation is a major issue.  It has been a huge issue for a long time, judging by the content and comments at my Insurance Law Committee Seminar of Thursday, February 4, and the Mediation Seminars I attended this past Friday and Saturday at the Midyear Meeting of the American Bar Association in Orlando.

   Florida has addressed this issue with Florida Rule of Civil Procedure 1.720(b), entitled "Sanctions for Failure to Appear".  (The link provided here is to the Florida Supreme Court's online publication of the Florida Rules of Civil Procedure.  Rule 1.720 is found on page 111 of this pdf document, numbered as page "CIV-79.")  Under the Florida Rule, a party fails to appear for Mediation, and is thereby subject to sanctions under the Rule:

If a party fails to appear at a duly noticed mediation conference without good cause, the court upon motion shall impose sanctions, including an award of mediator and attorneys' fees and other costs, against the party failing to appear....  Otherwise, unless stipulated by the parties or changed by order of the court, a party is deemed to appear at a mediation conference if the following persons are physically present:

   (1)  The party or its representative having full authority to settle without further consultation.

   (2) The party's counsel of record, if any.

   (3)  A representative of the insurance carrier for any insured party who is not such carrier's outside counsel and who has full authority to settle up to the amount of the plaintiff's last demand or policy limits, whichever is less, without further consultation.

   Even with a requirement of 'physical presence' and "full authority to settle up to the amount of the plaintiff's last demand or policy limits, whichever is less," the parties to a Mediation in Florida can still stipulate otherwise.  In my experience both as a Certified Mediator and as Counsel (including as Coverage Counsel and as "Bad Faith Counsel") at Mediations, very often the Insurance Company representative is allowed by agreement to attend by telephone or with less than "full authority" so long as "full authority" is available from someone at or reasonably close to the time of the Mediation.  The injured claimant and her, his or its attorneys may want to settle the case, after all -- and in order to settle it then or in the future, it is most likely the insured defendant's Insurance Company that they will be asking to put money into a settlement.

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When is Collateral Damage Required Full Disclosure?

    Reporting requirements frequently just do not seem to be spelled out in statutes or regulations.  After all, statutes and regulations are in a sense a part of the political process.  They are often the result of compromise among groups which include those whose behavior is most affected by the statutes or regulations.

   For example, it is reported that the Congressional Oversight Panel is discovering that TARP recipients are not required by TARP or other "guidelines" to report losses on commercial loans when the collateral anchoring those loans has dropped in value.  See Carrick Mollenkamp, "TARP Panel Widens Look at Loan Woe in Property" p. C3, col. 6 (Wall Street Journal, Thursday, January 28, 2010)(subscription required for online access).

   There is value in Equity and in Law, however.  It is in Courts of Equity and in Courts of Law that duties of full disclosure by Fiduciaries have been fashioned and shaped, for example, sometimes despite the opposition of those subject to full disclosure duties.

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Meanings Judges Give to Insurer "Good Faith" and "Bad Faith".

   In an interesting and informative blog, "Property Insurance Coverage Law Blog," the Merlin Law Group and Florida Attorney Chip Merlin, Esquire made some thoughtful recent comments about the meanings of "Good Faith" and "Bad Faith" under the Law generally, and under Florida Law in particular.  Their recent post ended with this question to me:  "Does anybody, even Dennis Wall, disagree?"

   Their question calls for a response in my judgment.  I hope that my response will be equally as thoughtful and informative as their post was to begin with.

This post in particular is based on an analysis of research compiled by Dennis J. Wall and published online and in print, in "Litigation and Prevention of Insurer Bad Faith" Chapter 14, § 14:1 (Second Edition Shepard's/McGraw-Hill, 2009 Supplement West Publishing Company).

      Asterisks (* * *) reflect omitted material.

Litigation and Prevention of Insurer Bad Faith, Second Edition

Database updated September 2009

Dennis Wall

Part

V. Summary and Conclusion

Chapter

14. Summary and Conclusion

§ 14:1.Summary and conclusion

Bad faith is a term without concrete meaning. It is employed in many different areas of the law, and in each of those areas its meaning is fixed by different rules. The meaning of bad faith also depends on how the law intervenes in the differing relationships among these several areas.

 

In the law of so-called insurer bad faith, the prime concern is with shifting the responsibility to pay damages from the insured to the insurer. If the shift is successful, the insurer will be paying extracontractual damages, i.e., sums not provided in its insurance contract and even beyond the policy limits. The basis for an insurer's liability to pay extracontractual damages is its fault, or so-called bad faith.

 

When a liability insurer faces duties to settle claims on behalf of its insured, it acts as a fiduciary. The basis of its excess or other extracontractual liability is breach of fiduciary duties, which is actionable in tort as well as in equity.

 

A liability insurer's wrongful refusal or failure to defend is a breach of contract. The contract doctrine of consequential damages is the basis of the liability insurer's responsibility to pay extracontractual damages at common law.

 

The liability insurer's final exposure to pay extracontractual damages at common law comes when it inadequately conducts the insured's defense. The basis of this exposure is negligence. Statutes regulate and provide remedies in each of these three categories of bad faith by liability insurers. Statutory law operates on these separate categories of settlement, refusal to defend, and inadequate conduct of the insured's defense in different degrees. Over all, existing statutes basically codify the common law.

 

First-party insurers have long paid consequential, and therefore extracontractual, damages at common law. First-party insurers have very few fiduciary duties, but where those duties are breached, first-party insurers are liable as fiduciaries regardless of any limits explicitly or implicitly imposed by their policies.

 

In order to allow insureds to recover certain kinds of extracontractual damages, many courts have fashioned a new tort of insurer bad faith. It is a mixture of objective and subjective standards of tort liability. The reality of this hybrid tort is that it is new. Its origins have as their only legal precedent past and existing remedies which were likewise fashioned in response to judicially perceived unfairness.

 

Statutes regulate and provide remedies in the area of first-party bad faith as well. These statutes are generally held to preempt the availability of actions or certain kinds of damages at common law.

 

In short, bad faith is a term which is given content only by examining the context in which it is employed. The law of an insurer's extracontractual liability in particular would benefit from greater attention to analysis and less reliance on a label.

* * *

 

From Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 14"1 published by West, a Thomson Reuters business, and UPDATED.

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Huge Securities Class Action Jury Verdict Tags Vivendi, Exonerates Officers.

   Reportedly "the largest securities class action jury verdict in history" tagged Vivendi with potentially $9.3 Billion in Damages.  In 57 separate claims, Vivendi was sued for allegedly making misstatements or omitting information that misled shareholders and inflated the company's stock.  Associated Press copyrighted story published as "Court Finds Vivendi Liable for Misleading Investors" p. B3, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, January 30, 2010); Richard Verrier, "Company Town/Federal Jury Finds Vivendi Liable in Shareholder Lawsuit" (Los Angeles Times Online, Saturday, January 30, 2010).

The class action lawsuit also named two additional Defendants who were Officers (including the Chief Financial Officer) of Vivendi.  The jury's verdict exonerated the individual Defendants and put 100% of the responsibility on Vivendi.  New York Times/Associated Press, supra; Los Angeles Times, supra.

   The defense expenses incurred by the individual Defendants must have been enormous.  This is the kind of lawsuit which gives rise to Insurance Coverage Questions, and it may have already done so.  It certainly appears likely that there will be future Insurance Coverage Issues surfacing over the available Director's and Officer's Insurance Coverage as a result of this lawsuit.

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Lehman Bankruptcy Disputes: Alleged Bad Faith, Breached Fiduciary Duties.

   Well, then, I will begin at the beginning.  Lehman Brothers filed for Bankruptcy.

   Barclays Capital purchased some of Lehman's assets after Lehman filed for Bankruptcy.  The purchase price is hard to pin down through a review of the Bankruptcy Court filings on Pacer.  However, for the purpose of this post, it is enough to know that the purchase price was in the relatively "low" Billions of Dollars.

   Barclays was required by Bankruptcy Law to meet the test of a purchaser 'in Good Faith' of assets of a debtor in Bankruptcy, in basic terms.  For all purposes at the time of the purchase, at least, Barclays met that test and was a purchaser in Good Faith.  Lehman apparently said so, then. So did a Federal Judge, apparently, in an Order approving the Sale.

   The assets purchased by Barclays from Lehman either greatly increased in value, or they were worth a lot more money than the purchase price.  For present purposes, say that their value was later found to increase from the "low" Billions to the high Billions of Dollars.

   Lehman filed a Motion under Federal Rule of Civil Procedure 60 for Relief from that order or judgment as provided in that Rule.  Lehman's Motion was filed in its original Bankruptcy Proceeding.  At the time of this post, Pacer is having great difficulty accessing that pleading.  It is Docket Number 5169 in the Southern District of New York's Bankruptcy Court Case Nos. 08-13555 and 08-01420, filed September 15, 2009.

   Lehman contended in its Rule 60 Motion that, in effect, Barclays had acted in Bad Faith in the purchase of certain of Lehman's assets after Lehman filed the Bankruptcy Proceeding.  Moreover, Lehman alleged in two Adversary Proceedings that Barclays allegedly aided and abetted Breaches of Fiduciary Obligations by Lehman executives:  Download Lehman Brothers v. Barclays Capital Adversary Complaint (Bankr. S.D.N.Y. Case No. 09-01731, Filed November 16, 2009), Paragraphs 70-81, pp. 24-28; Download Trustee Lehman Bros. Bankruptcy Estate v. Barclays Capital Adversary Complaint (Bankr. S.D.N.Y. Case No. 09-01732, Filed November 16, 2009), Paragraphs 148-152, p. 31.

   On Friday, January 29, 2010, Barclays Capital filed a 325-page Memorandum in Opposition to the Rule 60 Motions filed by Lehman and associated parties, and in Support of Barclays' affirmative Motion for Lehman to sell more assets and deliver them to Barclays:  Download 012910.BarclaysMemorandum (Bankr. S.D.N.Y. Case Nos. 08-13555 & 08-01420).   The documentation filed by Barclays has been described as "a 325-page filing".  Michael J. de la Merced, "Barclays Seeks Dismissal of Lehman Estate Suit" p. B3, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, January 30, 2010).  (At least, Barclays did not say it was a 'brief'.)  However, Barclays filed more than 325 pages that Friday.  The Memorandum itself is a pdf document of 325 pages, from cover to conclusion.  In addition, on Friday, January 29, 2010 Barclays filed a Motion, a Declaration, and an Appendix to Memorandum.

   In its lengthy Memorandum, in which there are 304 numbered pages of text, Barclays addressed the allegations of Bad Faith on pages 244-247 of the pdf document in particular, pages numbered 223-226 in the pleading, accessible here:  Download 012910.BarclaysMemorandum (Bankr. S.D.N.Y. Case Nos. 08-13555 & 08-01420).

   The voluminous documents and multiple contentions of the parties involved in Lehman's various Bankruptcy Proceedings illustrate the variety of contexts in which allegations of Bad Faith and Unfair Dealing make themselves known.  See also Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" Ch. 2 (Second Edition Shepard's/McGraw-Hill; 2009 Supplement West Publishing Company).

   Parenthetically, Bankruptcy Proceedings can be complex even for lawyers who do not regularly practice in the area.  Bankruptcy must be very confusing indeed to non-lawyers.

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Third-Party Bad Faith in Settlement FAQs: The Final Four (+1).

  This is the end, or Questions 7 through 11, of a list of 11 Frequently Asked Questions ("FAQs") about situations addressed by the Courts across the United States involving Claims of Third-Party Bad Faith in Settlement or Not.

COPYRIGHT DENNIS J. WALL 2010.  Reprinted With Permission.

LIABILITY INSURERS SETTLING THIRD-PARTY CLAIMS:

by

Dennis J. Wall, Esquire

 

COPYRIGHT © DENNIS J. WALL 2010

All rights reserved.  No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information retrieval system, without permission in writing from the author.

 

* * *

 

7.   Are there other standards required by U.S. Courts?

 

Another standard is that the Liability Insurer's decision not to settle a particular underlying claim must be "realistic" in the glare of the Liability Insurance Company's presumed expertise in settling claims.

 

Further, after a Trial has resulted in a Verdict and/or a Judgment against the Policyholder/Insured, the emerging view among the Courts has it that the Liability Insurance Company's decision to appeal the excess Judgment will be even more strictly reviewed in terms of Good Faith - Bad Faith in settlement.

 

 

8.   Do Courts in any jurisdictions in the U.S. treat a Liability Insurance Company's conduct in settlement negotiations as requiring something less than deceit or misrepresentation, for example?

 

Yes, for example the Wisconsin Court of Appeals has agreed with a Trial Judge's description "that this is not the 'bandana and pistol' type of dishonesty," and it is "more than mere negligence".  Warren v. American Family Mutual Insurance Co., 122 Wis. 2d 381, 388, 361 N.W.2d 724, 728 (Wis. Ct. App. 1984).

 

This is another example of why, due to the wide variation in how the Courts state and apply legal standards of Good Faith and Fair Dealing, that it is so important to consult the law of a particular jurisdiction where your Good Faith - Bad Faith Claims might arise.

 

 

9.   Does any jurisdiction lump all the Good Faith and Fair Dealing standards together for all cases of alleged Bad Faith in settlement, or in failing to Defend, or in providing a poor Defense under the particular Liability Insurance Policy?

 

Yes, "probably".  The reason for the qualification is that the answer in one case, decided by the Florida Supreme Court in 1995, held that both Third-Party Bad Faith actions and First-Party Bad Faith actions (i.e., actions involving alleged Bad Faith under a Policy such as a Fire, Renter's or Business Property Policy, under which the Policyholder/Insured makes a direct or "first" party claim for benefits), should all legally be treated the same way -- at least in a case like that one, where the claim presents an issue of whether it is Covered under the given Insurance Policy.  See State Farm Mutual Automobile Insurance Co. v. Laforet, 658 So. 2d 55, 62-63 (Fla. 1995).

 

 

10.  Are the standards of liability for "Bad Faith" in settlement by Liability Insurance Companies applied "after the fact" to settlement decisions by Liability Insurance Companies?

 

No, not generally.  There is no absolute Liability in Courts in the United States on account of a decision not to settle, although California Courts may have come close.  The generally accepted standard in this country is to examine a Liability Insurer's decisions not to settle the underlying claim in the light of the facts known or reasonably knowable by the Liability Insurer at the time it made its decision not to settle the underlying claim against the Policyholder/Insured.

 

 

11.  What are good sources of further information on this topic?

 

Resources:  Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Second Edition Shepard's/McGraw-Hill; 2009 Supplement West Publishing Company); and John K. DiMugno, Steven Plitt, and Dennis J. Wall, "CAT Claims/Insurance Coverage for Natural and Man-Made Disasters" (Thomson West 2008; 2009 Supplement).

 

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