Claims and Bad Faith Law Blog

Lender "Good Faith" Notification of Loan Modification Options, Required?

   California Law may soon add an additional requirement of Good Faith.  A Bill under consideration in the California Senate, and soon to be considered in the California Assembly apparently, "would require lenders to make a good-faith effort to notify defaulting borrowers about the availability of any loan modification programs."  The Los Angeles Times Editorial Board supports this Bill.  Editorial, "Foreclosures and Loan Modification Programs" (Los Angeles Times Online, Tuesday, August 17, 2010).

   The main opposition to the Bill, according to the Times' Editorial, is that "the main federal mortgage modification program imposes the same notification requirements on lenders before filing a notice of default".  However, the Federal Law does not impose penalties for a violation, so that the California State Senate Bill would provide some 'teeth' to a violation of Good Faith in this regard.  Id.

   "Everything is changing, but nothing is new," goes an old saying.  Adding some 'teeth' to an alleged violation of Good Faith is the very reason that Courts fashioned a cause of action to remedy alleged Insurer Bad Faith.

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When Material Representations Are Not Material MISrepresentations.

   Florida Statute Section 718.506 "provides condominium purchasers a cause of action for rescission of a condominium purchase agreement when a purchaser reasonably relies on any false material statement to a developer."  Bruno v. Mona Lisa at Celebration, LLC & Dodsworth v. Mona Lisa at Celebration, LLC  (In re Mona Lisa at Celebration, LLC), 2010 WL 3359527 (B.R. M.D. Fla. August 5, 2010)(Westlaw subscription required to access Westlaw), Notice of Appeal reflected on Pacer, the Online Docket of the Federal Courts.  (The Opinion in this Case was written by the well-respected Bankruptcy Judge Karen S. Jennemann.)

   However, as with the Law of Insurer Bad Faith, not every settlement attempt made by a Liability Insurer that does not necessarily result in success, is Bad Faith.

   One William Haberman was a managing member of Mona Lisa.  He provided an Affidavit (actually, one of at least two Affidavits) which "makes clear that Mona Lisa's design team made these changes to add value to the project at no additional cost to plaintiffs, not to skimp on building costs.  Plaintiffs have not provided any facts or evidence to contradict Haberman's explanation."  In re Mona Lisa at Celebration, LLC, 2010 WL 3359527 at *16.  [Emphasis by the Court.]  Cf. id. at *15 ("Nowhere does plaintiffs' expert ... opine that the overall value of the hotel amenities building was adversely impacted as a result of the redesign.").

   Sometimes actions and dealings are actually and incontestably in Good Faith and Fair Dealing.  When that happens, there can be no legitimate contest.

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D&O's Disclose Finances? Fiduciary Flyball Out?

   Baseball Owners are batty about unauthorized financial disclosures.  It hurts Baseball, they think, to let fans known that the Pittsburgh Pirate owners are making money hand over fist with a depleted ballclub that loses, loses, loses on the field.  Fingers point not to the Wrigley outfield (with apologies to the Bambino), but to D&O Liability Insurance Carriers as stealing the signals of Owners' finances.  See Richard Sandomir, "Insurance Companies Focus of Investigation" p. B11, col. 1 (New York Times Nat'l ed., Wed., August 21, 2010).

   Say it ain't so, D&O!

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You Cannot Hide All the Consequences, All of the Time: ...

  

... Shareholders Pay For Corporate Settlements.  Taxpayers Foot the Bill.

   A newspaper report published in The New York Times on Tuesday, August 24, 2010 captures some of the reasons that different Federal Judges in different Courts in different locales in this country are questioning the Federal Government's policy of settling light and easy with corporate fraud Defendants and ignoring many potentially culpable, individual Directors and Officers.  See Binyamin Appelbaum, "U.S. Judges, Perceiving Leniency in Bank Settlements, Sound Off" p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Tuesday, August 24, 2010).

   The Government's new policy was displayed in posts previously published here on Monday, August 23, 2010, and on Insurance Claims and Issues Web Log on Thursday, August 19, 2010.  It was openly questioned in Court by the Federal Judges and in their Opinions which are linked on those posts.  It is however not to be found in newspaper reports so far.  Not a whisper, not even a hint.

  There are two parts to the Federal Government's policy of reaching light and easy settlements with alleged frauds.  The first part was laid bare by more than one Federal Judge:  Corporate shareholders pay the settlements reached by corporate Defendants with the Government in these fraud cases.

   The other part of the Federal Government's policy involves the relative absence of individual Directors and Officers as Defendants in those fraud cases.  The absence of individual Directors and Officers removes the possibility of recovering anything from their Director's and Officer's Liability Insurance Coverages.  Taxpayers cannot look to those sources for payment.  That is more a consequence than an explanation, perhaps.  The explanation may lie more in Federal Government officials cultivating friendships with the Directors and Officers of the private businesses who may or will employ them when their government tenure is at an end.

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"Good Faith Dispute" Over Insurance Coverage, Defense to Bad Faith: ...

... Majority View.

 
A post published here on August 19, 2010 explored a California Court's rejection of California's "Genuine Dispute Rule" in a Bad Faith Case against a Liability Insurer and also involving a dispute over Insurance Coverage.  The present post examines the Majority View that Insurance Coverage can present a "Good Faith Dispute" Defense to Bad Faith Claims, at least in First-Party Cases.

   In a case which presented Tortious Breach of Good Faith (i.e., First-Party Bad Faith) Claims, a Federal Court applied the Majority Rule and held that "a good faith dispute" over whether the underlying claim was covered can be a complete Defense. Given the record in that particular case, the Defendant Fire Insurance Company's Motion for Summary Judgment was denied as a Jury Issue was presented. Keten v. State Farm Fire & Cas. Co., Download Keten v. State Farm Fire and Casualty Co. (N.D. Ind. Case No. 2006.CV.341, Opinon and Order Filed March 29, 2010) PUBLIC ACCESS,  also published as 2010 WL 1258198 *8 (N.D. Ind. March 29, 2010)(Westlaw subscription required to access Westlaw). The Online Docket of this case on Pacer reflects that a Settlement was reached at a Settlement Conference held on August 23, 2010.

   Similarly, in a case involving a "business income loss coverage" claim (for Business Interruption Coverage), a Federal Court applied the same rule to a Statutory First-Party Bad Faith Claim and held that there was no Statutory Bad Faith Claim where "[i]t was reasonable" for the Defendant First-Party Insurance Company "to believe that coverage should be denied ...." Ski Shawnee, Inc. v. Commonwealth Insurance Co., Download Ski Shawnee, Inc. v. Commonwealth Insurance Co. (M.D. Pa. Case No. 2009.CV.02391, Memorandum and Opinion Filed July 6, 2010) PUBLIC ACCESS,  also published as 2010 WL 2696782 *5 (M.D. Pa. July 6, 2010)(Westlaw subscription required to access Westlaw).

 The great majority of the decisions in Bad Faith Cases in which Courts have recognized the Defense of Fairly and Reasonably Debatable underlying Claims, have come in First-Party Cases. Moreover, where the Defense is recognized, a majority of Courts also permits evidence of the reasonableness of the Insurance Company's position in contesting its Coverage for the underlying claim -- whether First-Party or Third-Party. See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 5:16 (Third-Party Settlement Claims), § 5:26 (Wrongful Refusal or Failure to Defend Claims), § 5:51 (Claims Based on Conduct of the Third-Party Insured's Defense), and § 11:17 (First-Party Bad Faith Claims) (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement).

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Catastrophic Damages, BP Explosion Lessons: Persevere in Preparation.

   Lessons taught by the consequences of the Deepwater Horizon Explosion and Catastrophic Damages as a consequence of that disaster, are examined by Robert Trigaux, "For All, Gulf Coast Residents and Beyond, Spill's Lessons Must be Learned" (St. Petersburg Times Online, Sunday August 22, 2010).  The many lessons may be summed up in this:  Prepare, and persevere in your preparation.  See also William E. Gibson, "Gauging Oil's Damage May Take Decade/Florida Marine Experts Take Lead in Researching Disaster's Effects" p. A1, col. 2 (Orlando Sentinel, Saturday, August 21, 2010).

Dennis Wall is Co-Author of the leading book on Insurance Coverage for Catastrophe Claims, "CATClaims:  Insurance Coverage for Natural and Man-Made Disasters" (West Publishing Company 2008; 2010 Supplement in process).  Mr. Wall will be a featured speaker on a panel addressing "BP Oil Spill Damages Claims:  The Coverage Predicates" at the September 15, 2010 Seminar of the Insurance Law Committee sponsored by the Orange County Bar Association in Orlando, Florida.  Mr. Wall will also speak on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010 on "Dealing With Catastrophic Disasters:  How to Properly Investigate and Handle Overwhelming Claims".

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Contractual Obligation or Not, Good Faith Inherent in Special Projects, Relationships.

   In some Jurisdictions, Courts make Good Faith and Fair Dealing an implied covenant.  Others make Good Faith a contractual provision every bit as much as if the parties had written it into their Contracts.  Whether or not Good Faith and Fair Dealing is a contractual obligation, it is a standard for behavior in every special project, every special relationship.  It abides.

   This morning I came across for the first time the following expression of Good Faith.  The author of these quoted words captured the concept of Good Faith in them:

Whether or not a guarantee of quality is a contractual obligation, it's implicit in the project itself.  Google has, justifiably, described its book-scanning program as a public good.  But as Pamela Samuelson, a director of the Center for Law & Technology at the University of California at Berkeley, has said, every great public good implies a great public trust.

Geoffrey Nunberg, "Google's Book Search:  A Disaster for Scholars" (The Chronicle of Higher Education, published online August 31, 2009).  [Emphasis added.]

   I have read again the words which I have italicized above in this quotation, and I have read them again, and again.  This is well said, and it is a good description of the concept of Good Faith and Fair Dealing.  Good Faith is a concept that exists regardless and almost independently of Insurance Claims and Insurance Policies in particular cases.  Instead, Good Faith and Fair Dealing can be found in many special places.  Or, perhaps, ought to be.

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UPDATE: Two Different Courts, Two Different Judges, Same Rejection: Settlement Deals.

  This is an  update to a post published on Insurance Claims and Issues Web Log on Thursday, August 19, 2010.

   A third Federal Judge continued to question a proposed Federal Settlement of Criminal penalties with Barclays Bank, but approved it last week nonetheless.  Reportedly, at a Hearing last week the Judge "expressed concerns that Barclays was not pleading guilty, that no individuals were being prosecuted, and that the $298 million [settlement amount] would be paid by shareholders, not corporate executives."  He approved the deal anyway.  See "Barclays Deal With U.S. Over Trade Sanctions is Approved" p. B9, col. 1 (New York Times Nat'l ed., Reuters Report, Thursday, August 19, 2010).

   The Federal Judge asking those questions also reportedly stated that "it wasn't his job to micromanage how the Justice Department handles prosecutions."  Brent Kendall and Michael Rothfeld, "Barclays Judge Says 'Yes, but ...'" p. C3, col. 1 (Wall Street Journal, Thursday, August 19, 2010), published online under the headline, "Green Light on Barclays Pact" (Subscription required to access Wall Street Journal online).

   Good Faith should enter into the Government's settlement deals.  Good Faith is certainly a required concept for Insurance Companies and other settling parties.  If Good Faith does not enter into Settlements to which the Government is a party, then what does?

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California Court Rejects "Genuine Dispute Rule" Applicability to Liability Insurer.

   A California Appellate Court has rejected the application of California's "genuine dispute rule" as a defense to Bad Faith Claims against a Liability Insurance Company, in Howard v. American Nat'l Fire Insurance Co., Download Howard v. American National Fire Insurance Co. (Cal.1st DCA Case No. A123187, Opinion Filed August 11, 2010) PUBLIC ACCESS also published as 2010 WL 3156851 (Cal. 1st DCA August 11, 2010).

   California's "genuine dispute rule" operates to absolve an Insurance Company from Bad Faith liability for Bad Faith in settlement where the insurer refused to settle because it reasonably disputed the value of the Claim, not because it disputed Insurance Coverage for it.  "Although an insurer may reasonably underestimate the value of a case, and thus refuse settlement, an insurer does not act reasonably in using its no-coverage position to refuse settlement altogether."  Howard v. American Nat'l Fire Insurance Co., 2010 WL 3156851 at *18.

   The Howard Court further noted that California's "genuine dispute rule" had previously been applied only in First-Party Bad Faith Cases.  Id. at *19.

   In any case, held the Court, California's genuine dispute rule would not be applied to absolve a Third-Party Insurance Company which allegedly refused to settle for its Insured because it wrongly took the position that it had no Coverage.  Id.  Parenthetically, the Insured in that case is a Catholic Bishop who was sued for negligent retention of a sexual predator-priest.  The Jury in the underlying case returned a Verdict against the Bishop in the amount of $5,500,000.00,  consisting of $2.5 Million in Compensatory Damages and $3 Million in Punitive Damages.  Id. at *1.

The Defense in Bad Faith Cases of Fairly and Reasonably Debatable underlying Claims, known in California as the "genuine dispute rule," is addressed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 5:16 (Third-Party Settlement Claims), § 5:26 (Wrongful Refusal or Failure to Defend Claims), § 5:51 (Claims Based on Conduct of the Third-Party Insured's Defense), and § 11:17 (First-Party Bad Faith Claims) (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement).

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Bad Faith Within the Deductible: Wisconsin Court Sets Major Precedent.

   In a decision of potentially major precedential value, the Supreme Court of Wisconsin unanimously approved the expansion and application of the Bad Faith Tort of Failure to Settle when the Insured is exposed by the Liability Insurance Company's alleged Bad Faith conduct, to liability within the Insured's Deductible:  Roehl Transport, Inc. v. Liberty Mutual Insurance Co., Download Roehl Transport, Inc. v. Liberty Mutual Insurance Co. (Wis. Case No. 2008AP1301, Opinion Filed June 22, 2010) PUBLIC ACCESS OFFICIAL OPINION also published as 325 Wis. 2d 56, 784 N.W.2d 542 (2010)(Westlaw subscription required to access via Westlaw).

   The Court's narrow holding is as follows:

   Roehl Transport, an insured with a deductible for its liability coverage, has a cognizable bad faith claim against its insurance company when the company has control over settlement of a third-party claim and engages in bad faith conduct toward the insured, even though the judgment does not exceed the policy limits.

Roehl Transport, Inc. v. Liberty Mutual Insurance Co., 784 N.W.2d at ¶7, p. 547.

   The reasoning which informed this holding is the same reasoning as has always been employed by Wisconsin Courts in Bad Faith Cases, as the Supreme Court saw the question:

   For the very reason our cases have concluded that an insurance company becomes liable for the tort of bad faith when it fails to act in good faith and exposes its insured to liability over policy limits, we likewise conclude that an insurance company may be liable for the tort of bad faith when the insurance company fails to act in good faith and exposes the insured to liability for sums within the deductible amount.

Id. at ¶57, 784 N.W. 2d at 555.  [Emphasis added.]

   In sum, as the Supreme Court of Wisconsin saw the answer to this question:

When a conflict exists between the interests of an insurance company and the interests of an insured, and the insurance company has control over the claim, the insurance company has a duty to act in good faith to protect the interests of the insured.  When an insurance company breaches that duty, a cause of action for bad faith is cognizable in Wisconsin.

Id. at ¶112, 784 N.W.2d at 563.  See also Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:01, "Requirements for Fulfillment or Enforcement of Good Faith in Settlement:  A Working Definition of Third-Party Insurance and a Standard for Measuring Insurer Conduct" (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement).

   It does not take omniscient powers to predict that this decision is likely if not certain to have great precedential value to other Courts faced with similar situations in other jurisdictions. 

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Mediation Communications in Evidence, Duties to Defend, Good Faith ...

   ... Regardless of Other Insurers With the Same Duties, California Court Holds.

   In Howard v. American National Fire Insurance Co., Download Howard v. American National Fire Insurance Co. (Cal.1st DCA Case No. A123187, Opinion Filed August 11, 2010) PUBLIC ACCESS also published as 2010 WL 316851 (Cal. 1st DCA August 11, 2010)(Westlaw subscription required to access Westlaw), California's First District Court of Appeal has provided a unanimous decision in which the Court's Opinion addresses more issues than Carter has pills, as they say.  Here are some of them.

1.  Mediation Communications in Evidence.

   Like so many Courts, this Court pointed to Communications in Evidence from a Mediation without any discussion of whether any party objected to an apparent breach of Mediation Privilege.  Further, in this case, the particular Mediation Communications evidenced the apparent Bad Faith settlement conduct of a Defendant Liability Insurance Company.  See Howard v. American National Fire Insurance Co., 2010 WL 31526851 at *2.

Mediations and the question of Mediation Privileges in Bad Faith Cases are addressed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §§ 8:19 (Third-Party Cases) and 12:19 (First-Party Cases) (Shepard's/McGraw-Hill First Edition; West Publishing Company Second Edition and 2010 Supplement).

2.  Duty to Defend Regardless of Other Insurers.

   In cases where the Defendant Insureds are exposed to liability beyond their Liability Policy Limits, this Court concluded that California Insurance Law clearly allows such Insureds to pursue causes of action for Damages "'apart from defense costs'" for the Liability Insurers' Wrongful Refusals to Defend.  This is true even where such Insureds are defended in the underlying case by other insurers.  Id. at *12.

Consequential Damages issues in Wrongful Refusal to Defend Cases and in all other kinds of "insurer Bad Faith" Case are analyzed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 13:9 (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement).

3.  Duty of Good Faith and Fair Dealing Also Notwithstanding The Presence of Other Liability Insurers, Each of Which Has The Same Good Faith Duty.

   Duties of Good Faith and Fair Dealing are most often addressed by the Courts in the context of an alleged Wrongful Failure to Settle.  It becomes confusing, sometimes, when there are many Liability Insurance Companies, each with its own positions on its Insurance Coverages, and often each with its own evaluations of their respective Insureds' exposure to liability and to damages.  Even though in some cases there will be many Liability Insurance Companies which all provide Coverage of one kind or another to the same Insured, the Court in this case held that under California Law, "when one of multiple insurance policies provides coverage, each insurer's obligation is to cover the full extent of the insured's liability up to policy limits." Id. at *17.

Particular situations involving Primary and Excess Liability Insurance Companies with a common Insured, and how those situations affect their respective Good Faith Duties, are discussed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 5:22, "Excess Carrier's Defenses:  Bad Faith of the Primary Insurer" (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement).

To be continued.........

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No "Bad Faith," Still Florida Attorney's Fees Awarded to Policyholder.

   In a recent holding in a case previously commented on here in several posts, and in which the Defendant Insurance Company prevailed on an alleged  First-Party Statutory Bad Faith Claim, the Insurance Company was still responsible for the Plaintiff's-Insured's Attorney's Fees under 2 Florida Statutes:  Kearney v. Auto-Owners Insurance Co., Download Kearney v. Auto-Owners Insurance Co. (M.D. Fla. Case No. 8.06cv00595, Order Awarding Attorney's Fees Filed August 4, 2010) PUBLIC ACCESS also published as  2010 WL 3119380 (M.D. Fla. August 4, 2010)(Westlaw subscription required to access Westlaw).

   The Insurance Coverage Claim involved Uninsured Motorist Coverage in that case under primary Policies issued by Zurich and by Auto-Owners, and under an Umbrella Policy issued by Auto-Owners, to the Plaintiff's father and to the father's business.  Auto-Owners prevailed on the Statutory Bad Faith Claim.  The Plaintiff, Mr. Clayton Kearney, then filed a Motion for Attorney's Fees under two Florida Statutes, Fla. Stat. § 627.428, which applies generally to actions between Insurers and Insureds in which the Insured prevails on even one claim or count against the Insurance Company, and Fla. Stat. § 627.727, which specifically provides in its subsection (8) that Section 627.428 does not apply in an action against a UM Insurer "unless there is a dispute over whether the policy provides coverage for an uninsured motorist proven to be liable for the accident."  Kearney v. Auto-Owners Insurance Co., 2010 WL 3119380 at 4 & n. 29.  [Emphasis by the Court.]  The holdings by the Federal Court in this case concerning the two Florida Statutes are both instructive and predictable.

   First, "[b]ecause § 627.727 does not define the term 'coverage,' the Court must give the word its ordinary meaning."  In that case, the underlying claim to Uninsured Motorist Coverage provided by  Auto-Owners Policies depended in turn on the extent of stacking allowed under a separate Policy issued by Zurich.  The Court in this case defined the undefined Statutory term, "coverage," and applied its new, ordinary-meaning definition to this particular case:

Coverage disputes, therefore, are disputes about risk -- and what kind of risk an insurance company took on in exchange for a premium....  Hence, the dispute over the stacking clause in the Zurich primary policy was, in essence, a dispute over how much risk Auto-Owners had assumed.

Id. at *5.  The "stacking dispute" which Mr. Kearney had with Zurich in this case in turn determined Auto-Owners' UM Coverage position under its own Policy.  "Both disputes involve how much risk the insurer agreed to take on."  Id.

   The Federal Judge apparently did not think much of Auto-Owners' argument that it was arguing about "set offs" against its UM Coverage, if any, rather than contesting its UM "Coverage":

But simply calling a legal dispute by a different name does not change the underlying nature of the dispute.  A McDonald's hamburger is still a McDonald's hamburger even if you call it a sirloin sandwich.

Id. at*5.

   Second, an award of an Insured's Attorney's Fees under Section 627.428 is not governed by the same standard as First-Party Statutory Bad Faith in Florida.  Florida Courts "have made clear that the standard for awarding attorney's fees under § 627.428 is not tantamount to a bad faith standard."  Id. at *7.  [Emphasis by the Court.]  "Therefore, the jury's determination that Auto-Owners did not commit bad faith does not prevent this Court from awarding Kearney attorney's fees."  Id.

   In awarding Kearney attorney's fees, the Court was guided by the twin purposes behind the enactment and application of Section 627.428 to Insurance Cases.  Those purposes are not limited to the one purpose of punishing Insurance Companies for wrongful conduct.  There is another purpose served by Section 627.428, which is "to compensate insurance customers who go to court to get a claim paid.  Therefore, even if the degree of an insurance company's wrongful conduct is modest, the need to compensate an insurer [sic] may tip the balance in favor of an attorney's fees award.  Considering both these factors adheres both to the statute's purpose and to the mandatory language of the state, which says that a trial court shall award attorney's fees."  Id. [Emphasis by the Court.]

To be continued ...............

Attorney's Fees Awards in Cases filed by Insureds against Insurance Companies are addressed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §§ 13.12 - 13.14 (Shepard's/McGraw-Hill First Edition/West Publishing Co. Second Edition and 2010 Supplement).

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Life Insurance Beneficiary Held: First-Party, Not Third-Party.

   The Plaintiff in Hanneman v. Guarantee Trust Life Insurance Co., Download Hanneman v. Guarantee Trust Life Insurance Co. (N.D. Fla. Case No. 5.10cv115, Order Filed August 5, 2010) PUBLIC ACCESS also published as 2010 WL 3087509 (N.D. Fla. August 5, 2010)(Westlaw subscription required to access Westlaw), is a beneficiary under a Life Insurance Policy who sued for alleged Bad Faith.  The Defendant filed a Motion to Dismiss based on the ground that the Plaintiff had not provided the Civil Remedy Notice of Insurer Violation that is required by Florida's Bad Faith Statute, Fla. Stat. § 624.155.  The Plaintiff countered that she was pursuing a Common Law Third-Party Bad Faith action, not an action for Statutory Bad Faith.

   The Federal Court granted the Motion to Dismiss, holding that the Plaintiff's Claim was for First-Party Bad Faith which is not recognized at Florida Common Law.  Since the Plaintiff's only source of remedy was under the Bad Faith Statute, and since the Plaintiff had admittedly failed to provide the Notice required by that Statute and a condition precedent to Claims pursued under it, the Plaintiff's Bad Faith Complaint was dismissed:

   Plaintiff is not a third party asserting a claim against the [deceased] insured, Kilan Hochstetler.  She is not the type of third-party beneficiary contemplated under the common law of third-party bad faith claims.  Plaintiff's claim is properly treated as a first-party bad faith claim subject to the requirements of § 624.155.

Hanneman v. Guarantee Trust Life Insurance Co., 2010 WL 3087509 at *2.

   In short, the Court held in this case that a Beneficiary under a Life Insurance Policy is a "First Party," i.e., a party for whose benefit the Insurance Policy was issued, and she is not a stranger to the Insurance Policy.

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Bankruptcy and the Debtor's Insurance in a Bad Faith Claim.

   In a recent case with a complex overlay of Bankruptcy procedures, a U.S. District Judge denied American International Group's and National Union Fire Insurance Company's Motion to Transfer and/or Reassign a Bad Faith Case to the Federal Judge who presided over a Jury Trial in a previous Case resulting in a $4 Million Verdict against the Policyholder:  Tucker v. American Int'l Grp., Inc., Download Tucker v. AIG (D. Conn. Case No. 3.09CV1499, Memorandum and Order Filed August 4, 2010) PUBLIC ACCESS also published as 2010 WL 3058687 (D. Conn. August 4, 2010)(Westlaw subscription required to access Westlaw).

   In the first case, the Plaintiff, Ms. Teri Tucker, brought a Claim in Federal Court "for unlawful termination" in violation of Federal and Connecticut State Law.  "More specifically, Tucker contended that she was terminated for opposing sexually harassing behavior by a subordinate employee and for refusing to testify falsely in her employer's defense to a sexual harassment complaint regarding the subordinate's behavior."  Tucker, 2010 WL 3058687  at *1.  Ms. Tucker received a Jury Verdict for $4 Million:  "$1 million in compensatory damages and $3 million in punitive damages."  Id.  The Federal Judge entered Judgment on the Jury Verdict in the first case.

   The Employer-Policyholder, Journal Register East, thereafter filed for Bankruptcy under Chapter 11.  An automatic stay was immediately effective.  Tucker sought relief from the Bankruptcy Court as against the Employer-Policyholder's Insurance Coverage under an Employment Practices Liability Insurance Policy issued to Journal Register East's parent company by the Defendants.  Id. at *2 & n.8.  She "made a motion in bankruptcy court for relief from the automatic stay for the purpose of pursuing recovery of the $4 million judgment ... from Journal Register East's insurer ... up to the limits of Journal Register East's employment practices liability insurance policy ('EPL Policy')."  Id.  Journal Register East stipulated to the relief requested and the Bankruptcy Judge approved the Stipulation.

   Tucker then filed her present Federal Case No. 2, in which she alleged Claims for Breach of the Implied Covenant of Good Faith and Fair Dealing, and for Unfair Trade Practices, and for the Tort of Bad Faith Claims Handling, among other Claims.  Id. at *3.  The Defendants, National Union and its parent AIG, countered with a Motion to Transfer Case No. 2 or Reassign it to the Federal Judge who presided over the earlier sexual harassment Case which Tucker filed against Journal Register East.

   The Motion was Denied in the subject Memorandum and Order.  In that Bad Faith and Unfair Trade Practices Acts Case, "the central issue is whether defendants' EPL Policy with the Journal Register Company covers the damages resulting from plaintiff's allegedly wrongful termination," which was never an issue in the first case.  Id. at *6.  Since Case No. 2 did not involve "identical" issues but instead an Insurance Coverage Issue which was critical to all the Plaintiff's Bad Faith and Unfair Practices Claims, as well as all her other Claims, the Motion to Transfer and/or Reassign was accordingly denied in this Case.

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Oil Spill Spreads: St. Joe Paper Alleges Halliburton Caused Consequential Damages.

   St. Joe Co. (St. Joe Paper) reportedly has sued Halliburton in Delaware State Court for damages caused by Halliburton in connection with the Deepwater Horizon Oil Spill Catastrophe.  See Robbie Whelan, "Property Firm That Lost Value Sues Halliburton" p. A4, col. 1 (Wall Street Journal, Thursday, August 5, 2010).

  Although the linked newspaper report never uses the term, "consequential damages," clearly that is what St. Joe is seeking from Halliburton.  "St. Joe, which owns 577,000 acres of land in Florida mostly within 15 miles of the Gulf and is the biggest landholder in the Florida Panhandle, said the April disaster resulted in huge losses for the company when hundreds of tourists canceled vacation plans to stay at its resorts."  Id.

   The lead attorney for the Plaintiff St. Joe Co. is quoted in the article as pointing to Damages to St. Joe from a "depressed ... market cap," lost sales, "'and there is certainly an interruption in our business.'"  Id.  [Emphasis added.]

Insurance Carriers for Halliburton beware, and Carriers for BP and Transocean Ltd. beware as the article reflects that St. Joe is retaining its options to sue them too.  Further, any Insurance Company that issued Policies to St. Joe itself which provide Business Interruption Coverage should be ready for Claims as well.

Dennis Wall is Co-Author of the leading book on Insurance Coverage for Catastrophe Claims, "CATClaims:  Insurance Coverage for Natural and Man-Made Disasters" (West Publishing Company 2008; 2010 Supplement in process).  Mr. Wall will be a featured speaker on a panel addressing "BP Oil Spill Damages Claims:  The Coverage Predicates" at the September 15, 2010 Seminar of the Insurance Law Committee sponsored by the Orange County Bar Association in Orlando, Florida.  Mr. Wall will also speak on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010 on "Dealing With Catastrophic Disasters:  How to Properly Investigate and Handle Overwhelming Claims".

I have asked the attorneys representing St. Joe in the reported lawsuit to kindly forward a copy of their client's complaint after my research on the Delaware Courts website was unable to locate a copy there.  Please Read The Disclaimer.

Remand Denied: Bad Faith Claim Held Separate From Coverage Claim.

   In Love v. Property & Casualty Ins. Co. of Hartford, Download Love v. Property & Cas. Ins. Co. of Hartford (M.D. Fla. Case No. 8.10.CV.649, Order Filed July 16, 2010) PUBLICLY ACCESSIBLE OFFICIAL REPORT also published as 2010 WL 2836172 (M.D. Fla. July 16, 2010)(Westlaw subscription required to access Westlaw), a Federal Court denied a Motion to Remand a UM Bad Faith Claim.  The Court held that, under Florida law, a Bad Faith Claim is separate from a Claim on an Insurance Policy.  Love, 2010 WL 2836172 at *2.  In the Court's view, therefore, it is proper to remove a Bad Faith Claim to Federal Court and leave the adjudication of the Coverage Claim, here, the UM Claim, to the State Court in which a Jury had already returned a Verdict in excess of the UM Policy Limits.  Id. at *3.

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First-Party Statutory Bad Faith Claim, and No Preemption: Court.

   Two holdings are of importance in the recent decision in the Federal Case of Cieplinski v. State Farm Mut. Auto. Ins. Co., Download Cieplinski v. State Farm Mutual Auto. Insurance Co. (M.D. Pa. Case No. 3.10.CV.1093, Memorandum Opinion Filed July 26, 2010) FREE ACCESS OFFICIAL REPORT also published as 2010 WL 2926846 (M.D. Pa. July 26, 2010)(Westlaw subscription required to access Westlaw):

   1.  The Plaintiff stated "a cause of action" for Statutory Bad Faith under 42 PA. CONS. STAT. § 8371 where she based her Claim on allegations that the Defendant Insurance Company refused to pay her medical claims for chiropractor bills because of allegedly biased peer review.  "Plaintiff has alleged that State Farm denied her first party medical benefits by using the same peer reviewer on multiple occasions and in the face of Plaintiff's treating chiropractor's recommendations that she treat two (2) or three (3) times per month for the rest of her life....  As such, Plaintiff has properly alleged a cause of action for bad faith pursuant to" the Pennsylvania Statute.  The Federal Court denied State Farm's Motion to Dismiss this Claim accordingly.  Cieplinski, 2010 WL 2926846 at *3.  [Emphasis added.]  (Compare the emphasized language from the Cieplinski holding in this regard, with Worth Bargain Outlet, Inc. v. AMCO Insurance Co., Download Worth Bargain Outlet, Inc. v. AMCO Insurance Co. (S.D. Cal. Case No. 09.cv.839, Order Filed July 21, 2010) FREE ACCESS OFFICIAL REPORT also published as 2010 WL 2898264 *11 (S.D. Cal. July 21, 2010)(Westlaw subscription required to access Westlaw), also a case of alleged First-Party Bad Faith.  In Worth Bargain Outlet,  a Plaintiff-Policyholder which suffered a fire loss argued that one of the grounds for its alleged Bad Faith Claims was that the Defendant Insurance Company "'dishonestly selected its experts' and those 'experts were unreasonable' in their investigation of Plaintiff's claim."  The one and "only argument Plaintiff puts forth to suggest a biased investigation is the fact that [Defendant's Expert] was hired 20 times by Defendant before Plaintiff's claim, and 30 to 40 times since."  [Emphasis added.]  The Worth Bargain Outlet Court held that this was not enough by itself either to show bias or to demonstrate a basis for a First-Party Bad Faith Claim.  Worth Bargain Outlet, 2010 WL 2898264 at *11.)

   2.   Of particular interest to practitioners in Pennsylvania, the Federal Court in Cieplinski revisited one of its own previous decisions and held that a First-Party Statutory Bad Faith Cause of Action under 42 PA. CONS. STAT. § 8371 is not entirely preempted by the strictures of 75 PA. CONS. STAT. § 1797.   In the Cieplinski case, as a result, the Plaintiff-Policyholder was allowed to proceed on her Section 8371 claim where she alleged "that State Farm has abused the peer review process by hiring a peer reviewer that it knew had previously provided negative reports regarding Plaintiff's treatment."  Cieplinski, 2010 WL 2926846 at *3.  "Thus, Plaintiff's bad faith claim survives only to the extent that she is alleging that State Farm abused the peer review process by hiring a peer reviewer that would give a biased determination."  Id.  The Plaintiff would not, however, be allowed to proceed with a Section 8371 Claim to the extent that she based her Claim "on failure to conduct a reasonable investigation, evaluate coverage, or promptly notify her of a denial of first party benefits," which are preempted by Section 1797.  Id.

Timely Investigation and Evaluation plays a major role in preventing and litigating First-Party Bad Faith Claims, and they are both addressed in particular in § 9:7, Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Shepard's/McGraw-Hill First Edition; West Publishing Company Second Edition and 2010 Supplement).  Preemption of First-Party Bad Faith Claims, whether Statutory or filed at Common Law, are addressed in particular in § 9:16, id.

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POSTSCRIPT OF SEPTEMBER 2, 2010:  PACER, the Online Docket of the Federal Courts, reflects that a Notice of Settlement was filed in the Worth Bargain Outlet Case in the Southern District of California, on August 20, 2010.

BP, Calculating "Good Faith" Offsets, Figures $30 Billion in Liabilities ...

... For Now.

   BP has reportedly set aside a reserve of some $32.2 Billion or $32,200,000,000.00 against its foreseeable liabilities as a result of the BP Oil Spill Catastrophe.  This figure takes into account discounts extended to BP off of likely fines and penalties for BP's "Good Faith" efforts to contain the damage.  It will be offset by BP's expected Tax Credit of $10 Billion against its "spill costs."

   In other words, the $32.2 Billion reserve is BP's publicly announced prediction of its likely liabilities to pay fines, penalties and Damages in the situation:  "BP's $32.2 billion provision for spill costs, which includes a $20 billion fund for damages that was established under pressure from the White House, provides a window into the company's view of the spill's impact."  Jad Mousawad and Clifford Krauss, "BP Details $30 Billion Plan to Pay For Spill" p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Wednesday, July 28, 2010).

Dennis Wall is Co-Author of the leading book on Insurance Coverage for Catastrophe Claims, "CATClaims:  Insurance Coverage for Natural and Man-Made Disasters" (West Publishing Company 2008; 2010 Supplement in process).  Mr. Wall will be a featured speaker on a panel addressing "BP Oil Spill Damages Claims:  The Coverage Predicates" at the September 15, 2010 Seminar of the Insurance Law Committee sponsored by the Orange County Bar Association in Orlando, Florida.  Mr. Wall will also speak on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010 on "Dealing With Catastrophic Disasters:  How to Properly Investigate and Handle Overwhelming Claims".

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Good Faith Takes On a New Meaning.

   Upon the occasion of the "Settle Every Claim" SEC closing its investigation of Mr. Joseph Cassano, Mr. Cassano's lawyers issued a statement:

   We think they realized that our client acted in good faith, kept his superiors informed, and was honest with investors.

Gibson, Dunn & Crutcher LLP Statement of June 16, 2010 quoted by KarenFreifeld, "Cuomo Reopens Probe of AIG's Cassano After U.S. Ends Its Case" (Bloomberg.com, Friday, July 23, 2010).  [Emphasis added.]

   Mr. Cassano headed American International Group's defunct Financial Products Unit until March, 2008, in which capacity he was in charge of making "derivative bets on subprime loans that forced A.I.G. into a U.S. bailout."  Id.

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