Claims and Bad Faith Law Blog

There is "Following Form," And Then There is, "Following Form".

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   "Following form" is a term of art in the insurance industry, and it is not to be used blindly, according to a recent judicial decision.  An Excess Liability Insurance Policy containing that phrase to describe its coverage, may find that its coverage will be held by a Court to provide coverage which the carrier may not have contemplated.  This happened in a recent case in which there were two (2) underlying policies, one which did not exclude coverage for punitive damages and a second underlying policy which did expressly exclude coverage for punitive damages.  The issue there of course was for which of the two underlying policies was the subject Excess Policy "following form."  Download Chad Youth Enhancement Ctr., Inc. v. Colony National Insurance Co. (M.D. Tenn. Opinion Filed February 2, 2010), also published as Chad Youth Enhancement Ctr., Inc. v. Colony Nat'l Insurance Co., 2010 WL 455252 (M.D. Tenn. February 5, 2010)(subscription required to access Westlaw).

   The Federal Court in that case pointed out that this conflict could be avoided simply by "following the form" of a specific level of underlying insurance, as another Excess Policy involved in that case provided.  The Excess Carrier in question "could have easily limited its liability, not by having to list all of the express terms of the [underlying] policy and exclusions, but by more narrowly defining the precise policy on which it was following form."  Chad Youth Enhancement Ctr., Inc. v. Colony Nat'l Insurance Co., 2010 WL 455252 *11 (M.D. Tenn. February 5, 2010).

   In addition, the Excess Liability Insurance Policy at issue "could have specifically excluded all punitive damages from coverage, just as it excluded coverage for damages related to war and coverage for punitive damages in the terrorism endorsement."  Chad Youth Enhancement Ctr., Inc. v. Colony Nat'l Insurance Co., 2010 WL 455252 *11 (M.D. Tenn. February 5, 2010).

   Having failed to either expressly provide for which of any underlying policies it would be "following form," or to expressly exclude coverage for punitive damages, the Federal Court held in that case that the subject Excess Liability Insurance Policy provided coverage within the limits of Tennessee Law for punitive damages assessed against its Insured.

   Underwriters.  My goodness, what are you going to do with them or without them?

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Good Faith Insurance Experts' Opinions Allowed in Federal Case.

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   In Download Kearney v. Auto-Owners Insurance Co. (M.D. Fla. Opinion Filed November 5, 2009), also published as Kearney v. Auto-Owners Insurance Co., 2010 WL 3712343 *10 (M.D. Fla. November 5, 2009)(subscription required to access Westlaw), the Court summarized its holding on the admissibility of Expert Witness Opinion Testimony in Good Faith-Bad Faith Insurance Cases.  The following summary came in the course of denying a Defendant Excess UM Insurance Company's motion to exclude such testimony by the Plaintiff-Policyholder's Experts, but the Court's summary of its holdings applies equally to Experts proffered by Insurance Company Defendants:

   This case involves the issue of whether [the Defendant-UM Excess Carrier] acted in bad faith in its handling of [its Policyholder's] claim.  While the Court agrees that [the Policyholder's] experts cannot testify that [the Defendant-UM Excess Carrier] "acted in bad faith," as that would be an inadmissable [sic] legal conclusion, the experts may give their opinion regarding what ordinary and reasonable claims handling practices consist of and whether or not [the Defendant-UM Excess Carrier] complied with those standards.

[Emphasis added.]

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Bad Faith Penalties in Approving Settlement: A Factor to Consider.

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   "Bad Faith" Claims against Directors and Officers can be a factor which Courts will consider in approving, or rejecting a Settlement arranged by the same or other Directors and Officers, of Claims against the Corporation which will ultimately require the Shareholders to pay money:

   An even more fundamental problem, however, is that a fine assessed against the Bank, taken by itself, penalizes the shareholders for what was, in effect if not in intent, a fraud by management on the shareholders.  This was among the major reasons the Court rejected the earlier proposed settlement.  [Citation omitted.]  Where management deceives its own shareholders, a fine most directly serves its deterrent purposes if it is assessed against the persons responsible for the deception.  If such persons acted out of negligence, rather than bad faith, that should be a mitigating factor, but not a reason to have the shareholder victims pay the fine instead.

 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 11-12; also published as Securities & Exchange Comm'n v. Bank of Am. Corp., 2010 WL 624581 *5 (S.D.N.Y. February 22, 2010)(subscription required to access Westlaw).  [Emphasis added.]

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"Volcker Rule" Legislation Proposed, Wise Support, Finances Rule, Congress Balks.

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This updates previous posts here on February 15 and on January 25, 2010 and on Insurance Claims and Issues Web Log on February 23 and January 25, 2010.

   Proprietary trading is in trouble.  Maybe not so much.

   The Obama Administration has proposed a "Volcker Rule" which would do two things, both related to proprietary trading, i.e., trading in which only the 'Bank' has an expectation of making a profit and no client is involved.  (Here is a Summary of the "Volcker Rule Proposal" released by the Administration, and reprinted in the Financial Times on Wednesday, March 3, 2010.)

   First, Banks would be prohibited from "owning or controlling hedge funds and private-equity firms."  Rebecca Christie and Phil Mattingly, "'Volcker Rule' Draft Signals Obama Wants to Ease Market Impact" (Bloomberg.com, Thursday, March 4, 2010).

   Second, Banks would not be permitted to act "as a prime broker to hedge funds they advise."  Id.

   Former Secretaries of the Treasury and other Financiers (the "Elders") support the Rule.  The Banks, through their Financial Services Roundtable for example, oppose it.  Id.

   Some time ago, or so the story goes, Josef Stalin was told that the Pope was opposed to some action or other which Stalin proposed to take.  The Pope was a huge symbol of persuasive but not coercive influence.  Stalin's reply to being told that the Pope's views were opposed to his own views, is notorious:  "How many divisions has the Pope?"

   The persuasive influence of the Elders is clearly aligned on the opposite side of the Volcker Rule from the financial influence of the Banks, the Financial Services Roundtable, et al.  The fate of the Volcker Rule at the hands of Congress will be decided by which influence prevails on Capitol Hill.  Whether the way in which individuals behave in situations governed by the proposed Rule may, or may not, be changed hangs in the balance as well.

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"Motive and State of POLICYHOLDER'S ATTORNEY'S Mind" Relevant ...

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   ... TO CLAIM OF ALLEGED BAD FAITH IN SETTLEMENT "ISSUE OF WHETHER THERE WAS REALLY A REALISTIC POSSIBILITY OF SETTLEMENT."  Download Kearney v. Auto-Owners Insurance Co. (M.D. Fla. Opinion Filed November 5, 2009), also published as Kearney v. Auto-Owners Insurance Co., 2009 WL 3712343 *3 (M.D. Fla. November 5, 2009).

   After repeating this holding that was reached in previous cases decided under Florida Insurer Bad Faith Law, the Court noted its agreement "that such evidence is relevant and would not be pure speculation".  Nonetheless, the Court also advised the parties that it preferred to wait until the actual Trial, at which time specific objections could be made and ruled upon.  The Court in this case accordingly denied the Policyholder's motion to exclude the Opinion Testimony of Expert Witnesses regarding motives or state of mind, in which the Policyholder announced his anticipation that the defendant insurance company "will attempt to introduce expert testimony regarding the motives of his counsel".  Kearney v. Auto-Owners Insurance Co., 2009 WL 3712343 *3 (M.D. Fla. November 5, 2009).  [Emphasis added.]

There is an interesting post on Insurance Claims and Issues Web Log on March 25, 2010 which addresses Expert Witnesses in Insurance Cases.

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Prejudgment Interest Recovered on U.M. Limit Injured Claimants Would Have Taken.

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... if They Had Been Told The U.M. Limits Were Offered.

   Prejudgment interest was recovered on the $100,000.00 uninsured motorist policy limit for which the U.M. Insurance Company offered to settle personal injury claims against its Insured ten years before the injured claimants-plaintiffs established their right to recover it.

   This holding came in a legal malpractice lawsuit which was filed against the attorney the injured claimants had retained to sue the Uninsured Motorist Tortfeasor.

   The case also resolved a novel question of Washington State law by refusing to deduct the defendant attorney's contingency fee amount from the amount awarded in the suit filed by the plaintiffs-former clients-claimants against him.  The decision in this Shoemake v. Ferrer case is linked at  http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=818126MAJ, also published as Shoemake v. Ferrer, 2010 WL 376941 Paragraph 5 *1, Paragraph 15 *4 (Wash. February 4, 2010)(en banc)(subscription required to access Westlaw).

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Orange County Sheriff's Deferred Compensation Plan Lawsuit Denied Class Action.

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   The Sheriff of Orange County, Florida, Jerry L. Demings, filed a Complaint seeking a class action in the U.S. District Court for the Southern District of Ohio.  The Sheriff sued Nationwide Life Insurance, Nationwide Retirement Solutions, and Nationwide Financial Services.   His Complaint contained alleged Claims for alleged breach of Fiduciary Duty and Unjust Enrichment.  Sheriff Demings alleged and requested class action certification "on behalf of all public employers" who sponsor "deferred compensation plans" for employees, which are Plans permitted under Federal Law.  The Federal Trial Judge refused to certify a class and dismissed the Sheriff's Complaint.

   On appeal, the Sixth Circuit Court of Appeals affirmed this decision.  The opinion of the Sixth Circuit was written by retired-Justice Sandra Day O'Connor:  Download Demings v. Nationwide Life Insurance Co. (6th Cir. Opinion Filed February 3, 2010), also published as Demings v. Nationwide Life Insurance Co., 593 F.3d 486 (6th Cir. February 3, 2010).  The District Court held that the Orange County Sheriff's lawsuit could not proceed as a class action because "it was precluded" under the Federal Securities Litigation Uniform Standards Act or "SLUSA".  The Sixth Circuit panel agreed, and the Trial Court's Order dismissing the Sheriff's Complaint was therefore affirmed.  Demings v. Nationwide Life Insurance Co., 593 F.3d 486, 488 (6th Cir. February 3, 2010).

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Jury Instructions Committee Alterations to "Insurer Bad Faith" Standard Instructions.

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   The Florida Bar Standard Jury Instructions Committee has recommended a complete new wardrobe for the Standard Instructions in Florida Civil Cases.  On March 4, 2010 the Florida Supreme Court authorized the publication of these new clothes, and some new proposed "Standard Instructions," in an enormously long opinion which you can download here:  Download In re Standard Jury Instructions in Civil Cases (Fla. Case No. SC09-284, Opinion Filed March 4, 2010).  This opinion and its appendix of proposed new Standard Jury Instructions is also published as In re Standard Jury Instructions in Civil Cases, 2010 WL 727521 (Fla. March 4, 2010)(subscription required to access Westlaw).

     The Standard Instructions are all renumbered and regrouped.  "Insurer's Bad Faith" is now addressed in several proposed Standard Jury Instructions, numbered 404.1 through 404.13, inclusive.  Several of the proposed changes do not appear to be substantive changes concerning Insurer Bad Faith Claims, but some may have the effect of changing the outcome of Jury Trials in Bad Faith Cases.

   Newly proposed SJI 404.2 provides that "(Claimant)[Defendant] must prove [his][her][their] claim(s) [and defenses] by the greater weight of the evidence."  Whatever the substantive accuracy or inaccuracy of this assertion, it is a change from the current opening Instruction, MI 3.1 b, which does not advise the Jury of who has what burden of proof, but instead instructs the Jury on what they should determine from all that they have seen and heard during the Trial:  "If the greater weight of the evidence does not support the claim of (claimant), your verdict should be for (defendant).  However, if the greater weight of the evidence does support the claim of (claimant), your verdict should be for (claimant)."

   The Jury in an Insurer Bad Faith Case is likely to be confused by this unnecessary change in language from SJI MI 3.1 b, to proposed SJI 404.2, above.  It is not the Jury's job to determine whether one party or another has met her, his or its  burden of proof.  That is the Judge's job.  Rather, the Jury's job is to review all the evidence, regardless of who introduced it, and then determine on the full record whether or not the "greater weight of the evidence" supports the claim.

   The proposed SJI 404.2 evidences an effort to be fair by eliminating that part of the current  Instruction that the Jury's "verdict should be for (claimant)" if the Jury determines that the manifest weight of the evidence supports the claim in the given case.  There are Defenses based on alleged Facts to consider, too, which the proposed change would include and the current SJI MI 3.1 b does not address.  Inherently, SJI MI 3.1 b is premised on an idea that all Defenses that may be available in Insurer Bad Faith Cases must always be based on Law rather than on Fact, so this is a good change to recommend to that extent, but not in the proposed language.

   Proposed SJI 404.5 is totally new.  It would address "only" Cases involving "Medical Malpractice Insurer's Bad Faith Failure to Settle," according to the new Committee Comment.  This is ostensibly premised on a Florida Statute, Section 766.1185 (2009).  This Statute purports to apply to "all actions for bad faith against a medical malpractice insurer relating to professional liability insurance coverage for medical negligence".  To begin with, the continuing validity of this Statute is highly questionable on Equal Protection grounds advanced by various parties.  See Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:2 (2009 Supplement West Publishing Company).

   Moreover, proposed SJI 404.5 is not complete.  Proposed SJI 404.5 totally ignores each and all of the provisions of Section 766.1185 which the Legislature placed ahead of the limited language selected for the proposed Instruction:

(1)(a)  An insurer shall not be held in bad faith for failure to pay its policy limits if it tenders its policy limits and meets other reasonable conditions of settlement by the earlier of either:

1.  The 210th day after service of the complaint in the medical negligence action upon the insured. The time period specified in this subparagraph shall be extended by an additional 60 days if the court in the bad faith action finds that, at any time during such period and after the 150th day after service of the complaint, the claimant provided new information previously unavailable to the insurer relating to the identity or testimony of any material witnesses or the identity of any additional claimants or defendants, if such disclosure materially alters the risk to the insured of an excess judgment; or

2.  The 60th day after the conclusion of all of the following:

a.  Deposition of all claimants named in the complaint or amended complaint.

b.  Deposition of all defendants named in the complaint or amended complaint, including, in the case of a corporate defendant, deposition of a designated representative.

c.  Deposition of all of the claimants' expert witnesses.

d.  The initial disclosure of witnesses and production of documents.

e.  Mediation as provided in s. 766.108.

(b)  Either party may request that the court enter an order finding that the other party has unnecessarily or inappropriately delayed any of the events specified in subparagraph (a)2. If the court finds that the claimant was responsible for such unnecessary or inappropriate delay, subparagraph (a)1. shall not apply to the insurer's tendering of policy limits. If the court finds that the defendant or insurer was responsible for such unnecessary or inappropriate delay, subparagraph (a)2. shall not apply to the insurer's tendering of policy limits.

(c)  If any party to an action alleging medical negligence amends its witness list after service of the complaint in such action, that party shall provide a copy of the amended witness list to the insurer of the defendant health care provider.

(d)  The fact that the insurer did not tender policy limits during the time periods specified in this paragraph is not presumptive evidence that the insurer acted in bad faith.

Fla. Stat. § 766.1185(1)(a)-(d) (2009).  The Statute expressly provides in Subsection (2) that certain factors -- which appear in somewhat altered form in the newly proposed Instruction 404.5 -- apply "[w]hen subsection (1) does not apply".  Fla. Stat. § 766.1185(2) (2009).  Since the Legislature expressly intended for the events it enumerated in subsection (1) to be determined first, before any of the events which the Legislature thereafter enumerated in subsection (2) are determined, it is certainly incongruous if not misleading to blow past the subsection (1) events entirely as if they did not exist and as if they are not worth mentioning even in passing, and go directly to (2).

   One last change remains for discussion this day.  Proposed SJI 404.9 breaks out the language of current SJI MI 3.1 c, which is simply that in cases without claims for mental distress, the Jury should be instructed:  "If your verdict is for (claimant), the court will award damages in an amount allowable under Florida law."  Proposed SJI 404.9 would add a new title to hang down over this language like a banner, that it is the "Concluding Instruction When Court to Award Damages".  Maybe, maybe not.  But the change is not necessary and the consequences of the change are not known, and may not be intended.

   As it has done in the past when authorizing publication of the Jury Instruction Committee's recommendations, the Florida Supreme Court has carefully also stated that "we express no opinion on their correctness and remind all interested parties that this authorization forecloses neither requesting additional or alternative instructions nor contesting the legal correctness of the instructions."  In re Standard Jury Instructions in Civil Cases, 2010 WL 727521 *5 (Fla. March 4, 2010).

   Moreover, even then, "[t]he instructions as set forth in the appendix, fully engrossed, shall be effective when this opinion becomes final."  The opinion was issued on March 4, 2010.  In re Standard Jury Instructions in Civil Cases, 2010 WL 727521 *5 (Fla. March 4, 2010).   

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As Texas Goes, So Go Country's Courts ... in Opposite Direction.

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   As Fast as Their Legs Will Carry Them.

   In every jurisdiction in the U.S. which has addressed the question, "Bad-Faith," extracontractual damages claims are held to be assignable to a Third-Party Claimant.

   In every U.S. jurisdiction in which the question of such Assignments to Excess Carriers has been addressed, as well, the unanimous holding has been that such "Bad-Faith," extracontractual damages claims are assignable to an Excess Liability Insurer against the Policyholder's Primary Liability Insurer.

   Recently, Courts applying Texas statutory law have reached conclusions that actions under various Texas Penalties Statutes are not assignable.  E.g., Download Great American Insurance Co. v. Federal Insurance Co. (N.D. Tex. Case No. 3.04cv2267, Opinion Filed August 8, 2006), also published as Great American Insurance Co. v. Federal Insurance Co., 2006 WL 2263312 *9-*10 (N.D. Tex. August 8, 2006)(holding that claims under Texas Deceptive Trade Practices-Consumer Protection Act ["DTPA"] are not assignable by a Policyholder under a primary or  Third-Party or Liability Insurance Policy, against the Primary Carrier, to the Policyholder's Excess Carrier)(subscription required to access Westlaw); cf. Download Launius ex rel. Glasgow v. Allstate Insurance Co. (N.D. Tex. Case No. 3.06cv0579, Opinion Filed April 17, 2007), also published as Launius v. Allstate Insurance Co., 2007 WL 1135347 *5-*6 (N.D. Tex. April 17, 2007)(holding that "extra-contractual claims" under Texas DTPA and under the infamous article 21.21 of the Texas Insurance Code did not survive the death of the Policyholder-Homeowner under a Homeowner's Insurance Policy)(subscription required to access Westlaw).  The Online Docket of the Launius case reflects that it was settled after a jury verdict was returned, and that an Order was entered Dismissing the Case With Prejudice on July 26, 2007. 

Cases deciding the validity of Assignments of various extracontractual Damages or "Bad Faith" claims and causes of action, are analyzed by Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 7:2 ("Actions by Third Parties -- Assignment") and 7:8 ("Actions by Excess Carriers--Assignment") (Shepard's/McGraw-Hill Second Edition, 2009 Supplement West Publishing Company).

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When Admit Post-Claim-Decision Evidence? "Vexatious" Attorney's Fees Issue!

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    "We hold that post-declination letters and memoranda are relevant and admissible."  Norman v. American National Fire Insurance Co., 198 Ill. App. 3d 269, 303, 555 N.E.2d 1087, 1109, 144 Ill. Dec. 568, 590 (Ill. 5th DCA May 15, 1990)(subscription required)(not available Online as of the date of this post on the Illinois State Courts web site, which apparently archives Opinions Online back to 1996 at this time).

  The issue in that case was whether Attorney's Fees should be assessed against the Insurance Company Defendant under Section 155 of the Illinois Insurance Code, cited by the Court in the Norman case as Ill. Rev. Stat. 1985, ch. 73, paragraph 767.  That Statute requires a determination of whether the Defendant's conduct, i.e., its "action or delay," was "vexatious and unreasonable".

   "The question of vexatious and unreasonable delay is a factual one, which must be based upon an assessment of the totality of the circumstances, taken in broad focus."  Norman v. American National Fire Insurance Co., 198 Ill. App. 3d 269, 304, 555 N.E.2d 1087, 1109-10, 144 Ill. Dec. 568, 590-91 (Ill. 5th DCA May 15, 1990).

The assessment and recovery of Attorney's Fees, particularly under "Bad Faith" or "vexatious and unreasonable" standards of liability in an Action Against an Insurance Company, are discussed in  Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §13:14 (Second Edition, Shepard's/McGraw-Hill; 2009 Supplement, West Publishing Company).

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Travelers Homers With Hillerich and Bradsby, But Hillerich Hits Too.

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   The issues confronted concerning Reimbursement of Indemnity sought by the Liability Insurance Company in the case discussed below are discussed at length in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:4 (Shepard's/McGraw-Hill Second Edition; 2009 Supplement West Publishing Company).  The Policyholder's-Insured's recovery of Defense Expenses it incurred after a Liability Insurer wrongfully refused to defend it, are similarly addressed at length in id. § 13:13.

   Travelers has hit a home run in a case where it ran the risk of being home-towned.  It filed an action for reimbursement of settlement funds it expended on behalf of its Policyholder, Hillerich & Bradsby, in an underlying case which was filed against the bat-maker in the Eastern District of Michigan.  The Travelers filed its action for reimbursement in the same Court, the Eastern District of Michigan.  Hillerich & Bradsby's motion to transfer the case to its Headquarters District in the Western District of Kentucky was granted.  Download Travelers Property Casualty Co. v. Hillerich and Bradsby Co. (6th Cir. Case Nos. 09-5113, 09-5136 Opinion Filed March 12, 2010); also reported as Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *1 (6th Cir. March 12, 2010)(subscription required to access Westlaw).

   On appeal, a panel of the Sixth Circuit was confronted with the same open issue of Kentucky Law that confronted the Trial Court:

   Kentucky has not specifically spoken on the issue presented in this case, which is whether Travelers can seek reimbursement of settlement for non-covered claims when it funded the settlement under a reservation of rights, when Hillerich was given notice of its intent to seek reimbursement, and when Hillerich retained meaningful control of the defense and negotiation process.  In particular, Kentucky has not addressed whether an insurer can unilaterally reserve a right to reimbursement over the objection of the insured.

 Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *5 (6th Cir. March 12, 2010).  The Sixth Circuit panel, like the Trial Judge, predicted that Kentucky would follow what the Sixth Circuit held was the majority view on this novel question:

   Therefore, we conclude that Kentucky, like the majority of jurisdictions, will allow reimbursement for an insurer after a unilateral reservation of rights by the insurer over the objection of the insured in at least the narrow circumstances posed in this case and in cases such as Blue Ridge [Blue Ridge Ins. Co. v. Jacobsen, 25 Cal. 4th 489, 106 Cal. Rptr. 2d 535, 22 P.3d 313 (Cal. 2001)].  This reimbursement right arises under an implied-in-law contract theory to allow an insurer to seek reimbursement when [quoting the District Court, which quoted from Blue Ridge:]  "(1) the insurer has timely asserted a reservation of rights; (2) the insurer has notified the insured of its intent to seek reimbursement; and (3) the insured has meaningful control of the defense and negotiation process."

Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *8 (6th Cir. March 12, 2010).  The Sixth Circuit was not through with its work in this case, however.

    The Sixth Circuit further held that the Insured, Hillerich & Bradsby, had driven home some of its defense fees.  It turns out that Travelers had a duty to defend the first amended complaint in the underlying case, based upon "one allegation".  Kentucky Insurance Law determines the Duty to Defend under a standard of potential liability on the part of the Insured under a complaint.  Accordingly, there was a duty to defend such a complaint under Kentucky Law.  Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *12 (6th Cir. March 12, 2010).  The amended complaint was "constructively tendered" by Hillerich to The Travelers when Hillerich sent a draft of it to The Travelers and again sent it to The Travelers after the amended complaint was filed in the underlying case -- without change.  The Sixth Circuit held that, under Kentucky Law, The Travelers had a Duty to Defend the amended complaint from and after the date that the amended complaint was filed in the underlying case.  Travelers Property Casualty Co. v. Hillerich & Bradsby Co., 2010 WL 841275 *14 (6th Cir. March 12, 2010).  Accordingly, The Travelers was responsible for the Insured's Defense Fees and Costs from that date.

Note:  Both sides scored in the Travelers v. Hillerich & Bradsby Sixth Circuit case.  The author's recently published article in Insurance Litigation Reporter anticipates many of the same and other issues presented by Settlement decisions:  Dennis J. Wall, "The Era of Initiating Settlement Negotiations:  What Is A Liability Insurer to Do?"  32 Insurance Litigation Rptr. 1 (2010), which is now available here:  Download Article. Dennis J. Wall, The Era of Initiating Settlement Negotiations What Is An Insurance Company To Do. Published in 32 Insurance Lit Rptr 1 (2010).

HAPPY ST. PATRICK'S DAY!

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Bankruptcy Code Treatment of Preferential Transfers: Recoupment D&O Covered "Loss"?

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   The principles underlying the treatment of Preferential Transfers and getting the money back  under the Bankruptcy Code, as outlined in an excellent new article, seem to be very similar to the Equitable Doctrines of Recoupment and Exoneration:  See J. Henk Taylor & Justin Henderson, "Preferences/When Can a Trustee Claw Back Payments to Creditors?" 19 Business Law Today 60 (American Bar Association, Business Law Section, March/April 2010).

   A question arises, then:  Is the repayment of an established Preferential Transfer under the Bankruptcy Code a Covered "Loss" under Director's and Officer's Liability Insurance Coverage, or is it instead in the nature of a penalty for restitution which, it has been held, is not a covered "Loss" under a D&O Policy?  See, e.g., the post on Insurance Claims and Issues on March 10, 2010.

"Reimbursement and Exoneration" are the featured topics of Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 7:18 (Second Edition Shepard's/McGraw-Hill; 2009 Supplement West Publishing Company).

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"Confession of Judgment Rule" Penalizes Post-Suit Additional Policy Payment ...

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      ... By Allowing Recovery of Attorney's Fees for WRONGFULLY Causing Its Insured to Resort to Litigation, says the Court, following established Florida Insurance Case Law, in Download Clifton v. United Casualty Insurance Co. (Fla. 2d DCA Opinion Filed February 12, 2010), attached Official Slipsheet Opinion at 6-7; also published as Clifton v. United Casualty Insurance Co., 2010 WL 476660 *3 (Fla. 2d DCA February 12, 2010)(subscription required to access Westlaw).

   At the heart of these Cases is the idea that the Confession of Judgment Rule allows Policyholders-Insureds to recover Attorney's Fees in their action against their Insurance Company because as a matter of Law they prevailed.  However, the Confession of Judgment Rule is not absolute; rather, it can involve Questions of Fact which preclude Summary Judgment, as in the Clifton Case:

   What can be gleaned from these cases is that an insurer that is aware of a dispute with its insured cannot simply ignore that dispute, wait until the insured files suit to demand appraisal, pay any subsequent appraisal award, and then maintain that the payment does not constitute a confession of judgment as a matter of law.  On the other hand, if an insurer is not on notice that the claim or payment is disputed, the insured generally will be unable to show that he or she was "forced" to file suit, and a subsequent post-suit payment by the insurer may not constitute a confession of judgment.  While this does not mean that the insured is required to invoke the appraisal clause prior to suit, it does mean that the insured must, at a minimum, clearly notify his or her insurer in a timely fashion of his or her dissatisfaction with the amounts paid.

   In light of this controlling case law, it is clear that summary judgment in favor of United Casualty was inappropriate.

Download Clifton v. United Casualty Insurance Co. (Fla. 2d DCA Opinion Filed February 12, 2010), at 9;  Clifton v. United Casualty Insurance Co., 2010 WL 476660 *5 (Fla. 2d DCA February 12, 2010).  [Emphasis by the Court.]

The assessment and recovery of Attorney's Fees in Insurance Cases is discussed by Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" in §§ 13:12-13:14 (Second Edition, Shepard's/McGraw-Hill; 2009 Supplement, West Publishing Company).

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UPDATE: "Bad Faith" Lawsuits Allowed to Proceed Against MBIA.

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This is an update of a post in this space on Tuesday, March 2, 2010.

   The New York State Supreme Court decision denying MBIA's Motion to Dismiss came in the case of ABN Amro Bank N.V. v. MBIA Inc. (New York Supreme Court, New York County, Case No. 601475-2009, Opinion Filed February 17, 2010).  Here is a link to the 41-page unofficially reported decision by the New York State Supreme Court denying MBIA's Motion to Dismiss on February 17, 2010.  It is also reported as ABN Amro Bank N.V. v. MBIA Inc., 26 Misc. 3d 1223(A), 2010 WL 549074 (N.Y. Sup. Ct., N.Y. County, Opinion Filed February 17, 2010)(subscription required to access Westlaw).

   Several of the holdings in this Opinion are of interest.  First, the Court rejected any contention that the action of the New York State Insurance Superintendent in approving MBIA's restructuring plan had the effect of preempting any of the causes of action alleged by the Plaintiffs in this case.  A private right of action under the New York State Debtor and Creditor Law and common law "is not inconsistent with the mechanisms chosen by the Legislature to regulate the industry under the state's Insurance Laws.  The mere fact that there was earlier approval of the MBIA restructuring by the Insurance Department does not immunize defendants from subsequent statutory and common law claims."  Id. at pp. 26-27 of the attached unofficially reported Opinion; ABN Amro Bank N.V. v. MBIA Inc., 2010 WL 549074 *9 (N.Y. Sup. Ct., N.Y. County, Opinion Filed February 17, 2010).

   The Court then turned its attention to the legal sufficiency of each of the six causes of action alleged, stating:  "At the outset, it is important to highlight once again that the motion pending before the Court, is a pre-discovery motion to dismiss, not a post-discovery motion for summary judgment."  Id. at 32; ABN Amro Bank N.V. v. MBIA Inc., 2010 WL 549074 *11 (N.Y. Sup. Ct., N.Y. County, Opinion Filed February 17, 2010).

  That said, the New York Court denied MBIA's Motion to Dismiss a cause of action based upon allegations that MBIA breached an Implied Covenant of Good Faith and Fair Dealing.  To say again, the transactions between the Plaintiffs and MBIA arose before MBIA filed for reorganization and, with the permission of the New York State Insurance Department, split into two companies, one of which is now named National Public Finance Guarantee Corporation and which allegedly received all the assets that formerly belonged to MBIA in the restructuring; the other company was still named MBIA and it held the Plaintiffs' obligations but, allegedly, no assets with which to pay them.

   In the course of denying MBIA's Motion to Dismiss the alleged cause of action for Breach of the Implied Covenant of Good Faith and Fair Dealing, the New York Supreme Court applied what the Court described as settled New York law to the effect that no accompanying Breach of Contract is required in order for there to be a Breach of the Implied Covenant.  Id. at page 37 of the attached unofficially reported Opinion; ABN Amro N.V. v. MBIA Inc., 2010 WL 549074 *13 (N.Y. Sup. Ct., N.Y. County, Opinion Filed February 17, 2010).  This is at odds with the judicial decisions in many other States, which require an accompanying Breach of the express Contract in order for there to be a Breach of the Implied Covenant.

   In addition, in pertinent part the Court denied MBIA's Motion to Dismiss a cause of action for alleged Unjust Enrichment.  The Court in this case held:  "The critical inquiry in an action for unjust enrichment is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered."  Id. at 39; ABN Amro N.V. v. MBIA Inc., 2010 WL 549074 *13 (N.Y. Sup. Ct., N.Y. County, Opinion Filed February 17, 2010).

Actions for alleged Breach of the Implied Covenant of Good Faith and Fair Dealing are addressed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 2:7 (Second Edition Shepard's/McGraw-Hill, 2009 Supplement West Publishing Company), and Unjust Enrichment is discussed in id. § 7:16, among other Sections.  Preemption of Statutory Bad Faith Claims is addressed in particular in §§ 9:15, 9:16, and 13:1, among others. 

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Good Faith by Authors Checking Facts?

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   It is generally well accepted that a publisher's determination of a publishable and acceptable manuscript for publication, from an author under contract, imports a Duty of Good Faith in making such determinations.

   A recent newspaper article suggests that authors under contract may have a Good Faith Duty to check their facts before their books are published, perhaps, in an era in which more and more stories surface about possibly incredible statements and nonexistent or unverifiable sources:  Motoko Rich, "Pondering Good Faith in Publishing" p. C1, col. 1 (Tuesday, March 9, 2010).

See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 2:7 (Second Edition Shepard's/McGraw-Hill, 2009 Supplement West Publishing Company).

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Statutory Unfair Claims Allegation Guidance: What Deemed Adequate, What Not.

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   In Download Hogan v. Provident Life and Accident Insurance Co. (M.D. Fla. Case No. 6.08cv1897, Opinion Filed October 15, 2009), Hogan v. Provident Life & Accident Insurance Co., 665 F. Supp. 2d 1273 (M.D. Fla. 2009) (subscription required), a Federal Court was confronted with several allegations of Unfair Claims Practices under Florida Statutes.  Right or wrong on the merits, this decision provides guidance as to what this Federal Court deemed adequately alleged, and what not, among these alleged Claims of Statutory Unfair Claims Practices.

   The Plaintiff, Ronnie Hogan, was an Insured under a Long Term Disability Insurance Policy issued by Provident.  The Federal Court disposed of four (4) Statutory Unfair Claims Practices in Mr. Hogan's Amended Complaint, which will be addressed here.  First, Mr. Hogan alleged that Provident failed to adopt and implement standards for the proper investigation of claims.  This Claim was adequately alleged in the eyes of the Federal Court, i.e., the alleged Claim was sufficient to withstand a Motion to Dismiss under Federal Procedure:

However, Provident's alleged failure to adopt and implement standards for the proper investigation of claims is plausibly established by allegations that it failed to evaluate the totality of Hogan's medical condition, set goals for claims termination to obtain financial gain without respect to the merit of Hogan's claim, and terminated Hogan's benefits solely for financial reasons.

Download Hogan v. Provident Life and Accident Insurance Co. (M.D. Fla. Case No. 6.08cv1897, Opinion Filed October 15, 2009), attached Official Slipsheet Opinion at 9-10; Hogan v. Provident Life & Accident Insurance Co., 665 F. Supp. 2d 1273, 1283 (M.D. Fla. 2009).

   Second, he alleged that Provident "misrepresented" certain pertinent facts or insurance policy provisions relating to Coverages at issue in the case, an alleged Statutory Unfair Claim Settlement Practice.  The Federal Court granted Provident's Motion to Dismiss because the allegations were legally insufficient to support a Claim pled with particularlity as required of any Claim, in the eyes of the Court, which involved alleged Fraud.  Fraud is required to be alleged with particularity under Fed. R. Civ. P. 9(b).  Download Hogan v. Provident Life and Accident Insurance Co. (M.D. Fla. Case No. 6.08cv1897, Opinion Filed October 15, 2009), at 10; Hogan v. Provident Life & Accident Insurance Co., 665 F. Supp. 2d 1273, 1283 (M.D. Fla. 2009).

   Third, Mr. Hogan alleged that Provident denied claims without conducting reasonable investigations, which is also an alleged Statutory Unfair Claim Settlement Practice.  The Federal Court denied Provident's Motion to Dismiss this alleged Claim.  The Court held that this Claim "is plausibly established by allegations that Provident set targets and goals for claims termination without regard to the merits of Hogan's claim and terminated Hogan's benefits solely for financial reasons."  Download Hogan v. Provident Life and Accident Insurance Co. (M.D. Fla. Case No. 6.08cv1897, Opinion Filed October 15, 2009), at 10; Hogan v. Provident Life & Accident Insurance Co., 665 F. Supp. 2d 1273, 1283 (M.D. Fla. 2009).

   Fourth and finally, Mr. Hogan alleged another Statutory Unfair Claim Settlement Practice against Provident, alleging that Provident failed to promptly provide a reasonable explanation in writing to him of the basis in his Long Term Disability Insurance Policy, in relation to the facts or applicable law, for denial of his Disability Claim.  This Claim, too, withstood a Motion to Dismiss in this case under the Federal Rules of Civil Procedure:  "Provident's failure to provide Hogan a reasonable explanation for the denial of benefits is plausibly established by the assertion that Provident told Hogan he was not entitled to further benefits under his policy because he was no longer disabled, during which time Provident was allegedly engaging n a scheme to deny claims without respect to the merit of such claims solely for financial gain."  Download Hogan v. Provident Life and Accident Insurance Co. (M.D. Fla. Case No. 6.08cv1897, Opinion Filed October 15, 2009), at 10; Hogan v. Provident Life & Accident Insurance Co., 665 F. Supp. 2d  1273, 1283-84 (M.D. Fla. 2009).

   The Online Docket of this Case reflects that the Mediator filed a Report on January 5, 2010 that the Case was completely settled.  The Online Docket further reflects that an Order of Dismissal With Prejudice was entered upon the parties' Stipulation, on February 4, 2010.

Statutory Claims in Third-Party Bad Faith Cases are discussed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:25 (Second Edition Shepard's/McGraw-Hill; 2009 Supplement West Publishing Company), and Statutory Claims in First-Party Bad Faith Cases like the Hogan Case, are discussed in id. § 9:8.

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Claims and Bad Faith Law -- Author's Note: Commercial Advertising Not Authorized.

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Credit Default Swaps, Reserves, and Regulation: Credit Insurance.

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   There is good news and bad news from a Letter to the Editor from New York State Insurance Superintendent James Wrynn, that was published in the Business Section of the Sunday New York Times on March 7, 2010.

   First, the bad news.  Superintendent Wrynn reaffirmed a decision to back off of Regulation of the forms of Credit Insurance exemplified by some kinds of Credit Default Swaps.  At first, the New York State insurance Department was going to Regulate those CDSs that functioned like the Credit Insurance they are.  Download NYS Insurance Dept Circular Letter.09.22.08.  Two months later, the New York State Insurance Superintendent announced that he discovered that the Federal Government was taking steps to possibly talk about Regulating CDSs, and that satisfied him to back off. Download NYS Insurance Dept News Release.11.20.08.

   Second, the good news.  The importance of Reserves is explicitly recognized in Superintendent Wrynn's Letter: 

   There are two benefits to reserve requirements.  One, they ensure that the seller of the swap can pay up on its promise.  Two, since they will increase the price of swaps, they will tend to limit their use to situations where they serve a real economic purpose.

Amen. 

   Parenthetically, note the current description of these requirements as "reserve requirements".  Financial planners tend to describe setting aside Capital as "Capital requirements," and Insurance professionals tend to describe setting aside enough Capital to pay Claims as "Reserve requirements".  The difference in wording expresses the difference in orientation of the speaker.  When the previous New York State Insurance Superintendent backed off regulating CDSs in November, 2008, the Department's Press Release used the language of Finance -- to be regulated by the Federal Government -- and described similar requirements as maintaining "adequate capital".  Download NYS Insurance Dept News Release.11.20.08, at first unnumbered bullet point.

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Act in Best Interests of Their Clients? OUTRAGEOUS, they cry!

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   Stock Brokers and Insurance Agents are reportedly lining up to oppose a pending proposal for Finance Reform.  The provision would require Stock Brokers and Insurance Agents "to act in the best interest of their clients".  Tomoeh Murakami Tse, "Financial Reform Bill Likely to Lose Measure to Protect Wall Street Investors" (Washington Post Online, Sunday March 7, 2010).

   This attempt to legislatively enact the Common Law of Fiduciary Duties will reportedly fail, at least when Members of Congress are considering the cash campaign contributions that Stock Brokers and Insurance Agents can and do make.  See id.

   Who told them that they are not required to act in the best interests of their clients?

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Failure to Adopt Procedures to Handle Time-Limit Settlement Demands...

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   ... Held:  Actionable Bad Faith Under Kansas Law.

   In a recent decision of major proportions, the Tenth Circuit Court of Appeals held that under Kansas Law, a Liability Insurance Company's demonstrated failure to adopt a system or procedure to handle time-limited settlement demands constituted negligence under the record circumstances of that case.  Specifically, the Insurance Company's failure to accept a pretrial settlement demand was occasioned by its negligent lack of procedures to handle time-limited demands, and was the proximate cause of suit being filed against its insured, the Federal Appellate Court held.  Download Roberts v. Printup (10th Cir. Case No. 08-3189, Opinion Filed February 17, 2010), attached Official Slipsheet Opinion at 17 ("Shelter's negligence was the cause of Printup's exposure to the excess judgment because it necessitated Ms. Roberts' filing of the lawsuit against Printup to protect herself against the running of the statute of limitations.").  [Italics added.]

   The Appellate Court in that case thus reversed and remanded with instructions to enter judgment against the Insurance Company on a claim of Bad Faith.  Download Roberts v. Printup (10th Cir. Case No. 08-3189, Opinion Filed February 17, 2010), attached Official Slipsheet Opinion at 12-13, 17.

   In a holding that applied a standard of liability for Breach of Good Faith and Fair Dealing that potentially resonates far beyond the borders of Kansas, the Tenth Circuit further wrote:  "Shelter did not give Mr. Printup's interest the same consideration as its own or it would have set up an appropriate system to handle time-sensitive settlement offers."  Download Roberts v. Printup (10th Cir. Case No. 08-3189, Opinion Filed February 17, 2010), at 13. 

Statutory liability for allegedly failing to adopt and implement reasonable standards for the prompt investigation of claims arising under Insurance policies, is addressed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:25 (Third-Party Claims) and § 9:14 (First-Party Claims) (Second Edition McGraw-Hill; 2009 Supplement West Publishing Company).

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Who Gains From Secret Orders on Bad Faith Claims?

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   In a recent newspaper column, the deservedly well-respected Mr. Floyd Norris observed that he found "some documents have been filed under seal, with only edited portions released to the public," in litigation involving Bad Faith claims and causes of action alleged against MBIA.  Floyd Norris, "High & Low Finance/Equality at Issue For MBIA" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Friday, February 19, 2010). 

   The author has found a Class Action Lawsuit filed against MBIA in the United States District Court for the Southern District of New York, which is apparently one of the lawsuits reviewed by Mr. Norris.  The author has not found any Court Order requiring any document filed in that lawsuit to be filed under seal, in whole or in part.  Here is the Class Action Complaint in which a Bad Faith Claim, among others, is alleged against MBIA:  Download Aurelius Capital v. MBIA.Complaint (S.D.N.Y. Case No. 1:09.cv.2242, Filed March 11, 2009).  Parenthetically, the United States District Judge recently issued an Order in that case Denying MBIA's Motion to Dismiss and Declining to Abstain:  Download Aurelius Capital v. MBIA.Order Denying Motion to Dismiss and Declining to Abstain (S.D.N.Y. Case No. 1:09.cv.2242, Opinion Filed February 11, 2010).  But apparently no Order was entered requiring anything to be filed under seal.

   The author has also searched online through the New York State Courts web site, without success, for another, similar lawsuit filed against MBIA and referenced by Mr. Norris.  Another excellent and informative report on that lawsuit is by Patricia Hurtado, "MBIA Loses Bid to Toss Bank of America 'Split' Suit (Update 3)" (Bloomberg.com, Wednesday, February 17, 2010).

   Even if a Court Order was entered in either case requiring any documents or parts of documents to be filed under seal, the interests of the public in having access to information concerning Good Faith and Fair Dealing and in preventing future harm to members of the public should have been taken into account.  See Fla. Stat. § 69.081(4)(2009):

(4)  Any portion of an agreement or contract which has the purpose or effect of concealing a public hazard, any information concerning a public hazard, or any information which may be useful to members of the public in protecting themselves from injury which may result from the public hazard, is void, contrary to public policy, and may not be enforced.

   In the absence of a valid Court Order requiring anything to be filed under seal, then keeping information from the public is a misguided, wrong decision at its best, and reprehensible at its worst.

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Residential Foreclosure Mediation Tools: More Defaulting Borrowers Remain, More Lender Workouts.

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   The number of Foreclosure Lawsuits is increasing but the number of eviction auctions is dropping.  The first wave of Foreclosures has ended.  The middle class is now the target and they are not silent about Foreclosures and evictions.  Lenders are under pressure from the Federal Government and Federal Taxpayers to modify Mortgages, work out their loan payoffs, and keep Borrowers in their homes.  Lenders are also under pressure from State and mostly Municipal Governments to keep people in their homes so as to preclude the increasing incidents of vandalism of empty houses, and to maintain a rapidly dwindling Tax Base in an increasingly Great Recession.

   These developments are not simply local.  They are happening from Coast to Coast.  This is particularly valuable information to Mediators who conduct Residential Foreclosure Mediations.  See, e.g., Alana Semuels, "Many Borrowers in Default Stay Put as Lenders Delay Evictions/Despite Being Month Behind, Many Strapped Residents Are Hanging on to Their Homes, Essentially Living Rent-Free.  Pressure on Banks to Modify Loans and a Glut of Inventory Are Driving the Trend." (Los Angeles Times Online, Saturday, February 27, 2010);  Prof. Rachel G. Bratt, "Fixing the Homeowner Default Trap" (Boston Globe Online, Sunday, February 28, 2010); Erica Noonan, "Foreclosure Crisis Hits Affluent Towns" (Boston Globe Online, Sunday, February 28, 2010).

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"Bad Faith" Lawsuits Allowed to Proceed Against MBIA.

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   Aurelius Capital and related organizations filed a Class Action Complaint against MBIA, et al., on March 11, 2009:  Download Aurelius Capital v. MBIA.Complaint (S.D.N.Y. Case No. 1:09.cv.2242, Filed March 11, 2009).  Filed on behalf of investors holding "obligations for which MBIA Insurance issued financial guaranty insurance other than United States municipal/government bond securities," id., the Complaint was based on MBIA restructuring its failing Bond Insurance obligations.  Once a large Bond Insurance Company, MBIA moved beyond issuing Bond Insurance for "munis" or local government agencies authorized to issue bonds, to issuing guarantees or Credit Insurance for Derivatives.  The Aurelius Complaint contained a Claim alleging that MBIA acted in Bad Faith by making a separate corporation, National Public Finance Guarantee Corporation, to assume its obligations on Bond Insurance which it had issued to munis, while MBIA Insurance Corporation assumed the MBIA guarantees on Derivatives -- with far fewer assets with which to pay off the guarantees.

   On February 11, 2010, eleven (11) months to the day after the Class Action Complaint stating an alleged Claim for Bad Faith, among others, was filed by Aurelius, et al., the United States District Judge issued an Order Denying MBIA's Motion to Dismiss and Declining to Abstain:  Download Aurelius Capital v. MBIA.Order Denying Motion to Dismiss and Declining to Abstain (S.D.N.Y. Case No. 1:09.cv.2242, Opinion Filed February 11, 2010).

   The Class Action Bad Faith Claim will continue against MBIA in the Aurelius lawsuit, along with the other claims alleged against MBIA in that case.

  A separate lawsuit was filed against MBIA in New York State Supreme Court in May, 2009, also as a result of the MBIA restructuring.  Eighteen (18) "financial institutions" including Bank of America, UBS, and JP Morgan Chase reportedly filed a common Complaint containing alleged causes of action which apparently included alleged Fraud, and Bad Faith.  On February 17, 2010 New York State Supreme Court Justice James Yates reportedly denied MBIA's Motion to Dismiss in that case, as well.  A search online through the New York State Courts web site has failed to produce a copy of this lawsuit or holding as of the time of this post.  However, it is reported on by Floyd Norris, "High & Low Finance/Equality at Issue For MBIA" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Friday, February 19, 2010) and by Patricia Hurtado, "MBIA Loses Bid to Toss Bank of America 'Split' Suit (Update 3)" (Bloomberg.com, Wednesday, February 17, 2010).

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Residential Foreclosure Mediation Tools: More on Mortgage Modifications, FDIC.

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   This is an update on news affecting the Residential Foreclosure Mediation Tools that are discussed in the posts here on February 25, 2010  and on February 26, 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.

   The Federal Deposit Insurance Corporation is floating its own proposal to relieve the pressure of Foreclosure Lawsuits.  The FDIC is considering a new program of:

1. "Earned principal forgiveness."  Staying current on Mortgage payments could earn qualified homeowners-borrowers a reduction in Mortgage Principal.
2. The "earned principal forgiveness" would be limited to Mortgage loans "'significantly underwater'".  FDIC Chair Ms. Sheila C. Bair, quoted by Renae Merle, "FDIC to Test Principal Reduction for Underwater Borrowers" (Washington Post Online, Friday, February 26, 2010).
3. The program would also be limited "limited to loans acquired from a failed bank seized by the FDIC." Renae Merle, Washington Post Online, supra.

   Putting Principal back in the pockets of borrowers-homeowners is not based on opinions, but on demonstrated evidence.  Its significance is manifest to Mediators who handle Residential Foreclosure Mediations.  "'Whether homeowners have equity in their home is a key predictor of whether they will default on their mortgage or redefault on a loan modification.'"  Ms. Julia Gordon, Policy Director for the Center for Responsible Lending, quoted by Renae Merle, supra.

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