Claims and Bad Faith Law Blog

Florida Third-Party Bad Faith in Settlement Does Not Include ...

... a form proposed release with a letter back saying in essence "feel free to change it".

   In Download Cardenas v. GEICO Casualty Co. (M.D. Fla. Case No. 8.09.2357, Order Filed January 13, 2011) PUBLIC ACCESS, also published as 2011 WL 111588 (M.D. Fla. January 13, 2011)(authorized password required to access Westlaw), GEICO did not accept the injured claimant's settlement offer with a mirror image of it.  Instead, GEICO accepted all the terms of the offer, and also included proposed releases (drafted by GEICO) with a cover letter.  In the cover letter, GEICO informed the injured claimants and their attorneys that they should feel free "either to propose to Geico changes on the release[s]," or propose their own releases by faxing a copy to GEICO for review.  Id. at *2.  The Federal Judge granted GEICO's Motion for Summary Judgment that this was not actionable Bad Faith under Florida law.

   That is the short version.  Here is a longer version, taken from the linked decision:

   In this instance, the facts demonstrate that Geico responded without delay (the day after the accident) to inform Cardenas [GEICO's Insured] of the risk of liability beyond the policy limit. Geico promptly responded to Luhrsen's [attorney for the injured claimants'] initial request and expended every effort to comply promptly (within twenty days) with each term of the settlement offer, despite Luhrsen's refusing to communicate with Geico and Cardenas's failing to promptly respond to communication from Geico. Geico repeatedly, but to no avail, sought assistance from Luhrsen in drafting an acceptable release. Luhrsen declined to communicate with Geico and left Geico to draft a release. Upon tendering an acceptance, Geico disbursed the policy limit to the claimants (with a check payable to each claimant) and imposed no condition on disbursement. Furthermore, Geico stated a willingness to consider both a change to the propose[d] release and a release drafted entirely by Luhrsen. Luhrsen once again failed to respond. Cardenas cannot-now that Cardenas faces a judgment substantially in excess of the policy limit-rely on some supposed defect in Geico's proposed release or on Geico's inadvertent (but quickly rectified) failure to tender a second, certified copy of the policy. The facts of this action demonstrate no basis upon which a reasonable jury could conclude that Geico acted “solely on the basis of [Geico's] own interest” in attempting to settle the claim. In fact, the facts demonstrate the Geico acted promptly, diligently, and with due concern for Cardenas's best interest.

Id. at *4.  "Accordingly," wrote the Federal Judge, GEICO's Motion for Summary Judgment "is GRANTED".  Id. at *5.

Evidence of Bad Faith (or Good Faith) Claims Handling is largely irrelevant in Insurance Coverage litigation, in contrast.  See "Bad Faith Claim Handling Evidence Irrelevant to Insurance Coverage Questions" posted on January 26, 2011 on Insurance Claims and Issues Web Log.

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Florida Civil Remedy Notice Does Not Require Evidence Pleading, Court Holds.

   In the case of Download Altheim v. GEICO General Ins. Co. (M.D. Fla. Order Filed January 18, 2011) PUBLIC ACCESS, also published as 2011 WL 161050 (M.D. Fla. January 18, 2011)(authorized password required to access Westlaw), GEICO argued a Motion for Summary Judgment based in part on an allegedly insufficient CRN or Civil Remedy Notice under Fla. Stat. § 624.155, Florida's Bad Faith Statute.  The Federal Judge denied GEICO's Motion for Summary Judgment in that case.

   The CRN in question apparently had one box checked on the Form supplied by the Florida Office of Insurance Regulation (Department of Insurance), followed by a few words of explanation.  The checked box was for "Unsatisfactory Settlement Offer".  Next to it was the explanation that GEICO allegedly "'has failed to attempt to resolve this claim despite evidence that the claim exceeds the available coverage.'"  Id. at *4.  (The claim at issue with GEICO was an Uninsured Motorist claim for which there had previously been a demand for GEICO's UM Policy Limits.)  GEICO raised an issue that "this allegation in the CRN" was insufficiently specific to allow GEICO in essence to cure the alleged bad faith behavior.  The Federal Court rejected this argument, and denied GEICO's Motion for Summary Judgment in this regard, ruling:

   A fair reading of the CRN gives Defendant notice of the specific wrongful conduct at issue -- Defendant's failure to settle Plaintiff's claim due to an unsatisfactory settlement offer.  Furthermore, common sense suggests that the action Defendant could have taken to cure the alleged violation would be to increase the amount offered to settle Plaintiff's claim.  Plaintiff is not required to delineate in the CRN the specific amount necessary to settle her claim.  [Citations omitted.]  Additionally, the Court notes that there is no evidence before the Court that the Department of Insurance returned the notice for lack of specificity.

Id.  [Emphasis added.]

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Undisputed Covered U.M. Amounts: Extracontractual Exposure, Punitive Damages Exposure Also.

   There are important holdings on Bad Faith Claims filed against an Uninsured Motorist/Uninsured Motorist ("U.M.") Insurance Company in Nevada.  Two of them are posted here.

1.  Failure to Pay Undisputed Covered Parts of the Insured's Coverage Claim. 

   A growing number of Courts is holding that failure or refusal to pay undisputed covered amounts under First-Party Insurance Policies can be the basis of a Claim for Bad Faith.  The Bad Faith Claims may come at Common Law or under Statutes.  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 9:26 "Insurer's Payment of Undisputed Covered Amounts:  Introducing the Concept -- Part Payment of Non-Property, First-Party Claims, And of Claims Generally" (West Publishing Company 2010 Supplement).  A Federal District Court in Nevada has now held that Bad Faith Claims in such cases can be based on a U.M. Insurer's failure to follow its own Claims Manual.

   In Download Storlie v. State Farm Mutual Auto. Insurance Co. (D. Nev. Case No. 2.09cv02205, Order Filed January 13, 2011) PUBLIC ACCESS, also published as 2011 WL 116881 (D. Nev. Order Filed January 13, 2011)(authorized password required to access Westlaw), a Federal Court held in effect that the complete absence of case law in Nevada "indicating that an insurer must advance the undisputed portion of an UM policy," id. at *6, did not prevent a Bad Faith Claim from accruing.  First, provisions of the Defendant's "Auto Claim Manual" suggested to the Court that at least in some cases, the Defendant U.M. Carrier "does instruct its employees to advance the undisputed portions of an insured's UM policy benefits prior to the final settlement of an insured's claim."  Id.

   Further, refusal or other failure to pay undisputed covered partial amounts of Uninsured/Underinsured Motorist Claims could violate a statutory duty in Nevada "to effectuate prompt, fair, and equitable settlements of claims in which liability of the insurer had become reasonably clear."  Id. at *8.  The Federal Court wrote:

   In this case, a reasonable trier of fact could conclude that Defendant's failure to tender any offer during the ten month span of time between when Defendant initially received notice that Plaintiff might be pursuing an UM cause of action and the time at which Plaintiff filed this lawsuit -- January to October -- demonstrated a failure on Defendant's part to effectuate the sort of prompt, fair, and equitable settlement contemplated in [Nevada's] Unfair Claims Practices Act [Nev. Rev. Stat. § 686A.310(1)(e)], particularly when coupled with Defendant's failure to pay the undisputed portion of Plaintiff's medical bills even after receiving notification that they had been sold to a collections agency.

Storlie v. State Farm Mutual Auto. Insurance Co., 2010 WL 116881 *8 (D. Nev. Order Filed January 13, 2011).  (Link here to Chapter 686A of the Nevada Statutes.)  Although the Federal District Court's decision does not refer to them, other States' Statutes have similar Unfair Claims Practices provisions.

2.  Punitive Damages.

   "Under Nevada law, in order to recover punitive damages a plaintiff must show by clear and convincing evidence that the defendant acted with oppression, fraud, or malice.  [Citation omitted.] Oppression is a conscious disregard for the rights of others constituting cruel and unjust hardship.  [Citation omitted.]  Malice is present in conduct that is intended to injure a person or despicable conduct that is engaged in with a conscious disregard of the rights and safety of others."  Storlie v. State Farm Mutual Auto. Insurance Co., 2010 WL 116881 *9 (D. Nev. Order Filed January 13, 2011).

   In Storlie, the Plaintiff raised a genuine and material issue of fact in the eyes of the Federal Judge "particularly because over $9,000 of the policy was not in dispute and Plaintiff's medical bills had been submitted to collections."  Put on notice that part of Plaintiff's medical bills were being submitted to a collections agency, "Defendant's actions look particularly arbitrary and callous," wrote the District Court.  Id.  The Plaintiff's Punitive Damages Claim survived the Defendant's Motion for Summary Judgment in that case accordingly.  "Thus, summary judgment will be denied as to Plaintiff's request for punitive damages."  Id.

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Remand Bad Faith Case: Yes, No. And: Abatement No Shield.

   In Download Raschke v. Allstate Prop. & Cas. Ins. Co. (D. Nev. Order Filed January 10, 2011) PUBLIC ACCESS, also published as 2010 WL 86580 (D. Nev., Order Filed January 10, 2011)(authorized password required to access Westlaw), Ms. Sandy Raschke sued Allstate as a result of injuries she received in an auto accident.  She claimed medical expenses alone in excess of $54,000.00.  However, she received Insurance proceeds from the alleged tortfeasor and from a Worker's Compensation Carrier in the total amount of $34,895.70.  Ms. Raschke sued for the $15,000.00 Uninsured/Underinsured Motorist Limits of her Allstate Policy.  Her Claims included Bad Faith and Unfair Dealing, and statutory Unfair Claims Practices.  She sought:

1.  "[G]eneral damages in excess of $10,000.00";

2.  Punitive Damages, on her Bad Faith Claim, "in excess of $10,000.00"; and

3.  Her attorney's fees, in an amount which the Court did not specifically state nor apparently did Ms. Raschke.  (She was not required to, in any case.)

   The issue in this decision was whether the Federal Courts' $75,000.00 "amount in controversy" jurisdictional requirement was met.  If not, the Federal Court would reject the Defendant's removal of the lawsuit and remand the case back to State Court.

   The Federal Court held that the Defendant did not meet its burden of proof that it was "more likely than not" that the jurisdictional amount would be met.  The Federal Court characterized the Defendant's argument as "mere speculation" that an assessment of Punitive Damages for example could exceed $75,000.00.  The Federal Court granted the Plaintiff's Motion to Remand.  Raschke, 2010 WL 86580 at *1 - *2.

   In contrast, in another recent Bad Faith case a Federal Court refused to remand:  Download Barnes v. Allstate Insurance Co. (M.D. Fla. Order Filed Dec. 28, 2010) PUBLIC ACCESS, also published as 2010 WL 5439754 (M.D. Fla., Order Filed December 28, 2010)(authorized password required to access Westlaw).  In Barnes, the Plaintiff likewise sued for Uninsured Motorist Coverage.  Ms. Barnes requested leave to amend her State Court Complaint to include allegations of Bad Faith, which the State Court apparently granted but which was abated and was not tried in the State Court.  The State Court lawsuit instead proceeded on Ms. Barnes' U.M. Coverage Claim.  Her original State Court lawsuit was tried, a verdict was returned in her favor, a Judgment was entered against Allstate and was affirmed on appeal by Florida's Second District Court of Appeal.

   Allstate removed the case only after the Florida Appellate Court issued its mandate.  The issue was whether the removal was timely in this case.  "This was timely because the appellate process must be complete before the cause of action for bad faith insurance practice is ripe."  Barnes, 2010 WL 5439754 at *3.

   Ms. Raschke was also permitted by the Federal Court to again amend her Complaint.  She wanted to include allegations of conduct which she contended had accrued while her original Bad Faith claim was abated.  "The Court agrees that Plaintiff should be permitted to amend the bad faith claim to contain additional allegations that were not available to Plaintiff when she originally filed the bad faith claim."  Id.

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Happy Birthday, Dr. King, U.S. Hero.

   January 15 is the birthday of Dr. Martin Luther King, Jr.  If it ain't out of keepin' with the situation, as the saying goes:  Happy Birthday, Dr. King and God Bless the United States of America!

Title Insurance Companies Owe Good Faith, Good Faith Not "Infallibility": A Postscript.

   A Postscript has been published today in order to reflect an unrelated change to a case cited in a previous post here on April 30, 2010:

Postscript of Friday, January 14, 2011:

The Mortensen decision was withdrawn and replaced by the Idaho Supreme Court in order to change its ruling from a denial of Appellate Attorney Fees to Stewart Title, to an award of Appellate Attorney Fees to Stewart Title:   Mortensen v. Stewart Title Guaranty Co., 149 Idaho 437, 235 P.3d 387 (2010).  Otherwise, the quoted language from that decision in this post was left unchanged by the Idaho Supreme Court when it re-issued its Opinion in this case:  235 P.3d at 395 & n.1.--Dennis J. Wall.

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Cure Florida Statutory Bad Faith? Cure What? What Cure?

   Ms. Cecelia Dellavecchia alleged that GEICO, her Uninsured Motorist Insurance Company did not attempt in good faith to settle her U.M. Claim by, in part:

(b) failing to adopt and implement standards for the proper investigation of claims;

 

(c) failing to acknowledge and act promptly upon communications with respect to claims;

 

(d) failing to properly notify its insured of any additional information necessary for the processing of the claim;

 

(e) failing to clearly explain the nature of information eventually requested and the reasons why such information was necessary;

 

*3 (f) failing to provide a reasonable written explanation of the basis in the insurance policy, in relation to the facts or applicable law, for its wholly inadequate offer of settlement; [and]

 

(g) failing to properly train adjusters and claims personnel[.]

 

(Compl.¶ 14).

Dellavecchia v. GEICO General Ins. Co., 2010 WL 53029 *2 - *3 (M.D. Fla., Opinion Filed January 7, 2011).

   Ms. Dellavecchia sued GEICO under Fla. Stat. §§ 624.155(1)(b)1 and 627.727(10).  The controlling statute in her case, Section 624.155, provides for a "cure" period during which an Insurance Company accused of Bad Faith under the Statute can cure the violation alleged against it.

   Subsection (d) of Section 624.155 contains the "cure" provision:

(d) No action shall lie if, within 60 days after filing notice, the damages are paid or the circumstances giving rise to the violation are corrected.

The Florida State Statute provides an opportunity to cure or correct "the circumstances giving rise to the violation," or to pay "the damages," in short.  The Federal Court limited this Florida State Statute just to paying the damages alone.  The Federal Court's holding seemingly reads out of the State Statute the opportunity to correct "the circumstances giving rise to the violation" in Ms. Dellavecchia's case:

Addressing the allegations in paragraph 14 would not suffice to cure the wrongful failure to settle the claim.  Dellavecchia properly served notice that GEICO wrongfully failed to pay her claim.  The "cure" was payment.

Dellavecchia, 2010 WL 53029 at *3.  It appears that GEICO may have been deprived of the statutorily provided opportunity to correct the circumstances alleged in paragraph 14 of Ms. Dellavecchia's complaint, quoted above, leaving GEICO with only one Federally available alternative to Ms. Dellavecchia's Bad Faith lawsuit:

Pay.

Express Statutory Claims and Causes of Action in First-Party Bad Faith Cases, including under Fla. Stat. § 624.155, are addressed in Section 9:14 by Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Shepard's/McGraw-Hill Second Edition, West Publishing Co. 2010 Supplement).

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Nonjudicial Foreclosure Failure Regardless of Bad Faith; Securitization at Bottom.

   In an action filed by servicing companies or banks on behalf of securitized trusts ("foreclosers"), it has been held that the Plaintiffs were not entitled to a declaration of perfection.  The Plaintiffs in that case requested a judicial declaration that their real estate titles were perfected.  Instead, the Courts unanimously held that the foreclosers failed to obey the Law which allows nonjudicial foreclosures.  U.S. Bank National Association v. Ibanez (Mass., Opinion Filed January 7, 2011).  Try this link for the Public Access Official Opinion:  http://weblinks.westlaw.com/result/default.aspx?action=Search&cnt=DOS&db=MA=ORS, or do an internet search for "Massachusetts Supreme Judicial Court" and click on decisions or opinions. 

   The Plaintiffs were not denied their relief in this case because they acted in Bad Faith.  In Massachusetts, as in other nonjudicial foreclosure jurisdictions, "a mortgage holder must not only act in strict compliance with its power of sale but must also 'act in good faith and  ... use reasonable diligence to protect the interests of the mortgagor,' and this responsibility is 'more exacting' where the mortgage holder becomes the buyer at the foreclosure sale, as occurred here."  Id. n. 16.  The issue of the Plaintiffs' Bad Faith was not adjudicated here.  The Plaintiffs were not even accused of Bad Faith in this case, apparently.

   The issue was whether the foreclosers followed the Law.

   This was not a lawsuit filed by Homeowners (Mortgagors) who stopped paying their mortgages.  In fact, the Homeowners-Mortgagors admitted that they stopped paying their mortgages.  For a long time, they did not even contest the case for any reason.

   The issue was whether the foreclosers obeyed the Law.

   The Courts of Massachusetts held that the foreclosers did not obey the Law.

   Massachusetts is a nonjudicial foreclosure jurisdiction.  In taking that position, it stands with the majority of jurisdictions in the United States which do not require a Court to approve a Foreclosure or even a forced sale of the distressed property at issue.  This means that foreclosers like the Plaintiffs who filed this lawsuit, do not need a Court proceeding in order to foreclose when as here defaulting Mortgagors have stopped paying their mortgages.  Id.   However, to perfect their title, i.e., to eliminate a cloud on their title after foreclosure, foreclosers like the Plaintiffs in this case need a judicial declaration.  Id.   That is why the foreclosers filed suit here, to request a judicial declaration that they did it right.

   The Courts of Massachusetts, as noted, held that the foreclosers in this case did not obey the Law.  As a normal and ordinary part of securitization, the foreclosers recorded the final assignment of the Mortgages at issue after they foreclosed.  This was the first time in the record that during the course of securitization, the Plaintiffs-foreclosers recorded any assignment of the Mortgages on which they foreclosed.  They attempted to backdate their assignment.  Backdating was held a nullity, void and of no effect.

   The decision is based entirely on the Law of Massachusetts.  This Law is followed throughout many if not all nonjudicial foreclosure jurisdictions.  There does not appear to be any recognized basis for a majority of the U.S. Supreme Court to seize jurisdiction and reverse the result, even assuming that a majority could be assembled to seek that result.  The decision of the Massachusetts State Courts appears final.

   The facts which led to the decision do not appear to have involved any mistakes, so much as a procedure mandated by the foreclosing Plaintiffs' business model.  It would have cost a lot of money to record all the assignments involved in their securitization.  It also appears to be plain that securitization has set up a deadly contest.  Either the Law or securitization must give way to the other.   The two cannot exist side-by-side without one radically changing or dying in order to accommodate the other in its present form.

   Time will tell.

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Reserves Discovery Irrelevant, Potentially Prejudicial to Hurricane Wilma Coverage Claim.

 

   In 1550 Brickell Associates v. QBE Insurance Corp.,  Download 1550 Brickell Associates v. QBE Insurance Corp. (S.D. Fla. Case No. 07.2283, Order Filed January 3, 2011) PUBLIC ACCESS, also published as 2011 WL 9506*1 (S.D. Fla. January 3, 2011)(authorized password required to access Westlaw), the Defendant Property Insurance Company filed a Motion in Limine to bar introduction of evidence of its "Indemnity Reserves" at Trial of a Hurricane Wilma Case.  The Defendant's Motion identified Indemnity Reserves as providing "a measure of the insurer's total expected exposure on a given claim based upon information known at that time and reasonable investigation."

   The Federal District Judge granted the Motion in Limine in this case.  The Claims going to Trial were for Breach of Contract and Declaratory Relief.  The Court viewed Reserves evidence as irrelevant.  Further, the Court held that evidence of Reserves in a Breach of First-Party Contract Case held the potential of impermissible prejudice in the absence of a Bad Faith Claim (which was still on appeal), 1550 Brickell Associates v. QBE Insurance Corp., 2011 WL 9506 at *3:

Even assuming evidence of Defendant's indemnity reserves is relevant, there exists a real danger such information would prejudice Defendant and potentially mislead the jury. The Court is not convinced that jurors would not equate Defendant's increasing reserve amounts with admissions of coverage. It could tend to inject a bad faith element into a simple breach of contract action. In addition, there is nothing in Bertucci's [an independent adjuster's] reports that explains the basis for the reserve calculations or why any changes in the amount were made. Thus, the there is a significant risk that evidence of Defendant's indemnity reserves would confuse the issues and mislead the jury. 

Discovery of Reserves information issues addressed by the reported Case Law is analyzed in Sections 8:6 (Third-Party Cases) and 12:16 (First-Party Cases) by Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Shepard's/McGraw-Hill Second Edition, West Publishing Co. 2010 Supplement).

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Representations? Warranties? Millions in Defense, Provoke Settlements, Seal it Up.

   Insurance Companies will not be left to hold the bag in silence.  Those which issued Insurance Policies covering certain aspects of Mortgage Securitizations, such as Mortgage Insurance most notably, did so allegedly on the ground of representations and warranties given by Lenders.  Lenders, like the frequent Defendant Countrywide now owned by Bank of America, allegedly represented and warranted that the securitization packages for which they requested Insurance, met the lenders' Underwriting guidelines.  Allegedly, they did not, and the Insurance Companies are suing to force the Lenders to buy back the insured loan packages, thereby shifting the responsibility to pay from the Insurance Companies back to the Lenders.

   Parenthetically, although these reported Claims and Causes of Action seem to be based on Contracts, the requested relief sounds very much like Rescission or the prevention of Unjust Enrichment, or other Equitable Remedies.

   We are now at the beginning of this class of litigation.  Reportedly, a New York State Supreme Court Justice has ruled that MBIA, one of the Plaintiffs in such a case, can prove its case through a statistical sample of insured loans rather than proving that representations and warranties were not met in a universe of many, many individual instances.  The Justice relied on a case decided in 1856, writes David S. Hilzenrath, "Bank of America Hit With Setback in MBIA Insurance Mortgage Liability Lawsuit" (Washington Post Online, Friday, December 31, 2010).

   The linked newspaper report also notes that Allstate Insurance filed its own such lawsuit against Bank of America last week.  See id.  (The article unfortunately does not mention the Court in which the Allstate lawsuit is pending, or the case numbers of either the Allstate or MBIA cases.  When these are located, they will be posted here so that you can read the allegations for yourself if you choose.)

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Drug Manufacturers' Copay Coupons Cut Patient Costs, Increase Insurer Costs.

   Manufacturers of expensive drugs are reportedly printing Copay Coupons for patients to use their drugs.  Although the patients' cost is reduced, the rest of the story, so to speak, is that the remaining cost of the expensive drugs is paid by Health Insurance Companies.  The manufacturers of these expensive, non-generic drugs distribute their Copay Coupons both through doctors' offices and directly, such as through the Internet, writes Andrew Pollack in "Coupons for Patients, But Higher Bills For Insurers" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, January 2, 2011).

   Much has been written about the effects on Healthcare Costs from the Federal Health Care Reform Law enacted in 2010.  It is refreshing to read reports from other reporters who address the significant role played by actors previously unseen by the public.  One way to put it is to ask, why was such news not reported earlier, at the same time being thankful that it is reported now.

The author is Co-Chair of the American Bar Association's Health, Life and Disability Insurance Subcommittee of the Insurance Coverage Litigation Committee.

Best Wishes for a Happy New Year in 2011!

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