Claims and Bad Faith Law Blog

QUESTIONS OF GOOD FAITH AND FAIR DEALING BY BANKS AS MORTGAGEES.

            Some important questions implicating Good Faith and Fair Dealing by Banks as Mortgagees are asked by Gretchen Morgenson, "Fair Game / How to Erase a Debt That Isn't There" p. 1, col. 2 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday September 30, 2012).

            It is reported that Mortgagee-Banks including Bank of America and JP Morgan Chase have sent letters to Homeowners forgiving Mortgages that were discharged in Bankruptcy years ago.

           The letters also reportedly advise the Homeowners that the Banks' forgiveness of these debts which do not exist, will be reported to the IRS.  Id.

            Some questions arise, the answers to which do not appear to be entirely clear.  See id.   Will the Mortgagees-Banks claim that they are entitled to a credit for forgiving debts that do not exist, against their $25 Billion worth of obligations which include forgiveness of Mortgage debts?  They voluntarily assumed those obligations earlier this year when they agreed to their Mortgage Fraud Settlement with some States and the Federal Government.    See, for example, the post and links in it here on July 26, 2012, "BAD FAITH SETTLEMENT AGREEMENT: MORTGAGE SERVICERS, ATTORNEYS GENERAL, AND OBAMA ADMINISTRATION."

             If the Banks report their forgiveness of debts to the Internal Revenue Service, the burden will shift to the Homeowners to explain to the IRS why the Banks made a mistake in reporting this forgiveness of nonexistent debts.  Will the Banks seriously report forgiveness of these debts which do not exist, to the IRS?

            Readers of this blog are invited to EMail and write these questions to the Mortgagees-Banks.  Please take a moment to look up their addresses online and send them these simple questions.  They should have the answers. 

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OUTSIDE AGITATORS, REPUBLICAN PARTY OF FLORIDA, ATTACK WOMEN, BLACK JUDGES.

They may have a right to do this, if we let them; but they have no right to say that it is in Good Faith.

     A group calling itself "Americans For Prosperity" has attacked 3 Florida Justices, two women, one Black.  Michael Peltier, "Conservative Group Launches Ad Attacking Florida Supreme Court" (Reuters copyrighted article published online by the Chicago Tribune, Tuesday, September 25, 2012).  AFP is based in Alexandria, Virginia.

    AFP is funded by Charles and David Koch.  Id.  The Kochs, two brothers, live in Kansas City, Missouri and the New York City area, respectively. 

    Their father owned the John Birch Society in the 1950's and 1960's.  He died in 1967.

    For the first time in history, a political party is openly participating in Florida judicial elections now, too.  The "Republican Party of Florida" is opposing the merit retention of the same 3 Florida Supreme Court Justices who are opposed by the outside organization, AFP.  The 3 Justices are Fred Lewis, Barbara Pariente, and Peggy Quince.

    It is no coincidence that 2 of the Florida Justices under attack by the AFP and the RPOF are women, and one is Black.

    The RPOF says for itself that it is upset about the rulings in one particular case in 2010.  That was a 5-2 decision in which these 3 Florida Supreme Court Justices, joined by 2 more, ruled against the legality of a proposed Florida constitutional amendment written by the Florida Legislature, which would oppose the Federal Affordable Care Act or Obamacare.

    The Florida Legislature edited that proposed amendment to cure the deficiency and the proposed amendment is now on the ballot in 2012.  Mary Ellen Klas, "Florida Justice Warns of Assault on the Courts 'Through Partisan Politics'" (Miami Herald Online, posted on Monday, September 24, 2012).  So, where's the beef, as they say?

     Rather than addressing that question, the RPOF has shifted its professed outrage to target a 2003 decision in a death penalty case.  The Florida Supreme Court voted to overturn the conviction and order a new trial.  That decision was overturned by a majority of the U.S. Supreme Court and the convict did not receive a new trial.  Editorial, "GOP Should Butt Out of High-Court Decision" p. A12, col. 2 (Orlando Sentinel, Wednesday, September 26, 2012).  The convict was not released from the penitentiary at any time.   

    The 3 Florida Supreme Court Justices under attack now have stood for retention and been retained by Florida voters since that decision.  (They have all stood for retention and been retained a total of two times through this election.)  However, the Republican Party of Florida did not say a word.  Neither did anyone else apparently; they were all overwhelmingly retained by the people of Florida.

         These attacks on Judges by these creatures in 2012 have backfired.  People in Florida are not happy with them, let alone persuaded by them, judging from their unanimous rejection by newspapers from Florida (some of which are available through the linked cites above).  And these attacks have instead highlighted an important issue here:  Can Governor Rick Scott be trusted to replace them with unbiased Judges if they are not retained?  Martin Dyckman, "An Independent Court is at Stake in Florida" (Tampa Bay Times Online, published Monday, September 24, 2012).

    Outside agitators have come to Florida to attack Florida women and Black Judges.  They deserve nothing more positive than to be sent back where they came from.  Vote in Florida in November to retain our judicial integrity, our system of justice here in Florida.

    We do not have a perfect system of justice in Florida; but we have a great system of justice in Florida..  Tell these people to leave it alone.

    In Good Faith.

Please Read The Disclaimer.   

 

 

 

FIDUCIARY RULES IN PENNSYLVANIA, AND U.S., INSURANCE ADJUSTING.

            A rule of extracontractual liability applied by most if not all Courts to measure the Settlement Conduct of Liability Insurers, has even been extended to First-Party Insurers in some jurisdictions.  That is what happened as well in the recent decision in the case of Berg v. Nationwide Mutual Insurance Company,  2012 PA Super. 88, 44 A.3d 1164 (Pa. Super. April 17, 2012), Download Berg v. Nationwide Mut. Ins. Co. (Pa. Super. Ct. No. 12 MDA 2008, Opinion Filed April 17, 2012) PUBLIC ACCESS.

          The Berg case involved a claim of First-Party Bad Faith based on an Auto Insurance Company's denial that a vehicle was a total loss, despite an appraisal that the vehicle was a total loss, among other things.  In that Pennsylvania case, the Superior Court held:

The duty of good faith originates from the insurer's status as a fiduciary for its insured under the insurance contract, which gives the insurer the right, inter alia, to handle and process claims.

Berg v. Nationwide Mut. Ins. Co., 2012 PA Super. 88, 44 A.3d 1164, 1170 (Pa. Super. April 17, 2012).

            Parenthetically, the Berg v. Nationwide decision is an interesting new decision for many other reasons, including that the appellate court held that when the case is retried, the Trial Court should admit evidence that Nationwide paid its attorneys nearly $1 Million to defend the lawsuit which Nationwide's Policyholders filed against it.  Nationwide allegedly paid these rather large defense fees pursuant to a litigation strategy documented by its own claims manual, to deter the filing of small value claims.  The Superior Court noted that this assertion would have also been supported at Trial by other evidence which the Policyholders proferred and which the Trial Judge excluded, concerning Nationwide's practices followed in this case including the large amounts paid to its attorneys.  Berg v. Nationwide Mut. Ins. Co., 2012 PA Super. 88, 44 A.3d 1164, 1176-77 (Pa. Super. April 17, 2012).  The Court accordingly held that it was reversible error to exclude all this evidence, which the Trial Court should admit into evidence, all other things being equal more or less, when it retries the case.

            What the Court wrote in that new case concerning the adjustment and evaluation of claims is relevant to both Liability Insurance Companies and First-Party Insurers adjusting claims, alike:

A claim must be evaluated on its merits alone, by examining the particular situation and the injury for which recovery is sought.

Berg v. Nationwide Mut. Ins. Co., 2012 PA Super. 88, 44 A.3d 1164, 1177 (Pa. Super. April 17, 2012).  There may not be many areas of overlap between the handling of Casualty Claims and the handling of Property Claims.  This quoted judicial observation, however, is among the truths of claim adjusting and evaluation regardless of the type of Policy under which a claim is being adjusted.

 

Please Read The Disclaimer.

 

HHS SECRETARY NOT LIABLE TO SUIT AS RESULT OF HEALTHCARE LAW, ...

... MASSACHUSETTS SUPREME JUDICIAL COURT HOLDS.

             In an eerie echo of the litigiousness of opponents of the Federal Affordable Care Act, seven Massachusetts hospitals and one managed healthcare organization joined their litigation forces in two cases in which they sued the Massachusetts Secretary of the Executive Office of Health and Human Services.  They claimed that they were not paid enough money under the Massachusetts Healthcare Law known as MassHealth.

         These Plaintiffs, which "disproportionately provide medical care to the poor" in Massachusetts, claimed that the Secretary "has violated her obligation to reimburse them for the reasonable costs incurred in providing medical services to MassHealth enrollees."  Boston Medical Center Corp. v. Secretary of Executive Office of Health & Human Services, 463 Mass. 437, 2012 WL 4010338 *1 (Mass. September 14, 2012).  MassHealth is "the Massachusetts Medicaid program that is jointly funded by State and Federal legislative appropriations and serves the needs of" the poor, in basis and simple terms.  Boston Medical Center Corp. v. Secretary of Executive Office of Health & Human Services, 2012 WL 4010338 *1 (Mass. September 14, 2012).

            The Supreme Judicial Court affirmed the Orders of the Trial Court which entered Judgment on the Pleadings for the Secretary in one case, and which dismissed the complaint against her in the other case.

            The Plaintiffs pursued a dizzying array of legal theories, including alleged breach of the implied covenant of Good Faith and Fair Dealing.  The Supreme Judicial Court rejected all of the Plaintiffs' legal theories.  With respect to Good Faith, the Court ruled that the claim must fail because the claimants agreed in their written contract to accept payment at certain rates, and "the Secretary cannot be found to have acted in bad faith or to have dealt unfairly by failing to provide reimbursement at higher rates."   Boston Medical Center Corp. v. Secretary of Executive Office of Health & Human Services, 2012 WL 4010338 *1 (Mass. September 14, 2012).  [Emphasis added.]

            Similarly, the Plaintiffs' collective claims failed in which they attempted to allege "a regulatory taking" without lawful compensation, implied rights of action under various statutes, quantum meruit, economic duress as a cause of action, certiorari, mandamus, and declaratory judgment.  Boston Medical Center Corp. v. Secretary of Executive Office of Health & Human Services, 2012 WL 4010338 *8-*13 (Mass. September 14, 2012).

            In sum, the Secretary could not be sued for carrying out her obligations under the Act.  And the Plaintiffs could not recover over and above amounts that they voluntarily contracted to receive.  The implications ought to be of interest to Medicare and Medicaid providers who may in the future become unhappy with the rates of payments that they receive under similar provisions of the Federal Affordable Care Act.

Please Read The Disclaimer.

DISCOVERY: OTHER CLAIMS AND INVESTIGATING "SURVEYORS AND CONTRACTORS" BILLINGS.

            In a recent decision in California, a United States Magistrate Judge was confronted with numerous discovery requests in a case involving issues both of Insurance Coverage and of alleged Bad Faith claims.  Three of the discovery requests, one of which concerned a set of interrogatories and two of which concerned document requests, deservedly draw attention here.

            The first such discovery request was a set of interrogatories concerning a phrase used in the Insurance Company's Disclaimer of Coverage in that case.  The case involved Ocean Marine Cargo claims based on movements of large transformers over the ocean.  Century Aluminum Company served a Motion to Compel when the Defendant AGCS Marine Insurance Company refused to answer interrogatories concerning other Policies under which AGCS in essence denied Coverage, as in this case, on the ground that shipments were not "sufficiently packed to withstand the voyage".  Although he did not quote the interrogatories in full in this opinion, the U.S. Magistrate Judge granted Century's Motion to Compel as the Court limited the interrogatories to AGCS Policies "that involve ocean marine movements (as opposed to inland movement)" and to the movement of "transformers, not other large pieces of industrial electrical equipment."  Century Aluminum Co. v. AGCS Marine Insurance Co., 2012 WL 3647484 *2 (N.D. Cal.August 23, 2012)(Cousins, USMJ), Download Century Alum. Co. v. AGCS Marine Ins. Co. (N.D. Cal. August 23, 2012)(Cousins, USMJ) HIGHLIGHTED COPY.  PACER, the online docket of the Federal Courts, reflects that AGCS filed a Motion for Relief from this Order of the Magistrate Judge, which was denied by Order of the United States District Judge filed on September 18, 2012.

            The second discovery issue concerned a pair of document requests relating to two other transformer damage claims "that AGCS transformer expert Opperman testified he handled."  Century Aluminum Co. v. AGCS Marine Insurance Co., 2012 WL 3647484 *2 (N.D. Cal. August 23, 2012)(Cousins, USMJ).  As will be addressed later in this article, Mr. Opperman is an Expert who was retained by the Insurance Company to assist in the Insurance Company's investigation of this particular transformer damage claim.  The Magistrate Judge granted Century's Motion to Compel production in response to these two document requests, without limitations, giving two reasons for this ruling.  "First," said the Magistrate Judge, "the requests are limited to two damage claims and thus are readily retrievable and therefore not unduly burdensome.  Second, the claims files," even though they were claims submitted to other companies in the Allianz Group to which AGCS belonged and not to AGCS, "may be relevant as they connect to Opperman's opinions, which are relevant to Century's bad faith case."  Century Aluminum Co. v. AGCS Marine Insurance Co., 2012 WL 3647484 *3 (N.D. Cal. August 23, 2012)(Cousins, USMJ). 

            The third and final discovery request to be addressed here, was a single document request paraphrased by the Court as follows:  "Century seeks the time and billing records of surveyors and contractors ... that AGCS retained to assist in the investigation of the claim."  These were Experts "engaged by AGCS to investigate the transformer damage claim."  In other words, these persons are "surveyors and contractors that AGCS retained to assist in the investigation."    Century Aluminum Co. v. AGCS Marine Insurance Co., 2012 WL 3647484 *3 (N.D. Cal. August 23, 2012)(Cousins, USMJ).  The Court granted Century's Motion to Compel the requested production of "the time and billing records" of these particular "surveyors and contractors" who were retained by the Insurance Company to assist in performing the Insurance Company's investigation of the claim, finding that the requests for these "billing records are relevant and not unduly burdensome." Century Aluminum Co. v. AGCS Marine Insurance Co., 2012 WL 3647484 *3 (N.D. Cal. August 23, 2012)(Cousins, USMJ).

            In requiring the production of "time and billing records" of persons it previously described in the same opinion as Experts, the Court did not support its ruling with any citation of authority.  On its face, the ruling of the U.S. Magistrate Judge in this case is contrary to the settled rule in many jurisdictions, including in Florida, that discoverability of the billing records of Experts is very limited.  See generally 1 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 8:17 (Third Edition 2011, 2012 Supplement West Publishing Co); 2 id. § 12:18.

 

Please Read The Disclaimer.  

MORE INVOLVED IN LIABILITY FOR BAD FAITH SETTLEMENT CONDUCT: ...

... THE SETTLEMENT CONDUCT OF A LIABILITY INSURER IS MORE THAN REASONABLY GOVERNED BY A FIDUCIARY STANDARD, "DID THE LIABILITY INSURANCE COMPANY PREFER ITS OWN INTERESTS TO ITS INSURED'S INTERESTS" WHEN THE LIABILITY INSURER DID NOT ACT TO SETTLE THE CASE AGAINST THE INSURED.

 PART TWO OF TWO PARTS.

        Yesterday's article focused on an unsubstantiated standard vs. the prevailing standard of extracontractual liability in a specific context.  Yesterday's article, and this article which is the second of two parts begun here yesterday, focuses on Liability Insurance Companies and their settlement conduct with respect to claims against their commercial Insureds and noncommercial Insureds.

         As noted, there is a view which has recently begun popping up in some of the academic literature, which would provide a new standard of extracontractual liability, a new test for measuring a Liability Insurance Company's settlement conduct in any case.  It is a view, without any case law to support it, which goes something like this:

A liability insurance company with a duty to settle claims against its insureds is not liable for damages in excess of its policy limits if it acts reasonably when it fails to settle such claims.  A reasonable settlement decision includes taking account of the costs of defending the claim.

         The prevailing standard of extracontractual liability in this context, i.e., in the arena of Liability Insurers' settlement conduct concerning claims against any of their Insureds, is different.  Courts have said in concrete cases, if you will, that it is so clearly established that the Liability Insurer's settlement conduct is subject to the standard of liability of a Fiduciary in all cases, that no citation of authority is required to establish that legal proposition.

         The prevailing legal standard is thus to measure a Liability Insurance Company's settlement decisions by whether it has acted as a Fiduciary, i.e., whether the Liability Insurer must give at least equal consideration to the Insured's interests as to its own in determining whether and how to settle the underlying claim against its insureds.  See generally 1 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith §§ 3:31 - 3:35 (3d Edition 2011; 2012 Supplement West Publishing Company).

         The difference in the standards has the inherent capacity of deciding the outcomes of the cases.  Which standard to apply is clearly a matter of interest to Policyholders and Insurance Companies and their Counsel alike.  

         In particular, the judicial system's goal of promoting workable standards of conduct in the settlement of cases by Liability Insurance Companies, is not achieved if approval is given to including the costs of defending the claim as even a part of the reason to settle the claim or not to settle it.  Take for example the recent case of Cincinnati Insurance Co. v. Amerisure Insurance Co., 2012 WL 4033724 (S.D. Ala. September 12, 2012), Download Cincinnati Ins. Co. v. Amerisure Ins. Co. (S.D. Ala. No. 11.0271, Order Filed September 12, 2012) PUBLIC ACCESS.  Cincinnati Insurance "paid the sum of $168,842.06 in [defense] attorney's fees and expenses, as well as a $25,000 settlement payment" on behalf of a common Insured of Amerisure.  The common Insured is a corporate General Contractor.

        Cincinnati sued Amerisure to get all that money back, alleging legal theories of breach of contract and negligence, and seeking damages as equitable remedies under claims for contribution among insurers, unjust enrichment, and equitable subrogation.  Cincinnati Insurance Co. v. Amerisure Insurance Co., 2012 WL 4033724 *1 (S.D. Ala. September 12, 2012).  For reasons which need not be addressed here, Cincinnati lost.

        Suppose, however, that the case had involved the General Contractor's Bad Faith claims against Cincinnati, the CGL carrier which expended $169,000.00 in defense of the underlying case against the Insured.  Under the new but unfollowed "reasonableness" standard, Cincinnati would have been authorized to include the costs of defense in its settlement calculations.  If Cincinnati had never settled that underlying case, and had the underlying case gone to an excess verdict  and judgment above the Insured's policy limits, then it seems that the reasonableness standard would likely have insulated Cincinnati from a Bad Faith claim by the Insured General Contractor, even though in that hypothetical the Liability Insurance Company and clearly not the Insured would have caused the excess verdict and judgment.  This is so because the above-summarized new and baseless "reasonableness" standard will inoculate Liability Insurance Companies which calculate the costs of defense in making settlment decisions.

        In short, even though the Liability Insurance Company might have preferred its own interests to the settlement interests of its Insured in that scenario, it would have been immunized from extracontractual liability for failure to settle the claim against its Insured.   

              To say again as was said in yesterday's article as well, the cost of defending a claim against a Policyholder is certainly one factor which can and will be taken into account in the defense of claims.  However, while the reality is that Liability Insurance Companies will consider the costs of defending the claim, the law does not now and should not in the future authorize Liability Insurance Companies to prefer their own interests in not spending money for the costs of defending the claim, against the interests of their commercial and noncommercial Insureds in settling those claims simply because a decision not to pay lawyers and others is defensible as "reasonable" in some or all of the cases filed against the Insureds.

Dennis Wall is a featured speaker at this year's National Forum on Bad Faith Litigation in Orlando, Florida on November 28 and 29, 2012.  I am told that if you mention my name if you register to attend this Forum through September 28, 2012, you can receive a discount on registration.  The American Conference Institute's website address is  www.americanconference.com/badfaith.

Please Read The Disclaimer.

BAD FAITH LIABILITY FOR SETTLEMENT CONDUCT: ...

... IS MORE THAN REASONABLY GOVERNED BY A FIDUCIARY STANDARD, "DID THE LIABILITY INSURANCE COMPANY PREFER ITS OWN INTERESTS TO ITS INSURED'S INTERESTS" WHEN THE LIABILITY INSURER DID NOT ACT TO SETTLE THE CASE AGAINST THE INSURED.

 PART ONE OF TWO PARTS.

             There is a view which has recently begun popping up in some of the academic literature, which would provide a new standard of extracontractual liability, a new test for measuring a Liability Insurance Company's settlement conduct.  It is a view, without any case law to support it, which goes something like this:

A liability insurance company with a duty to settle claims against its insureds is not liable for damages in excess of its policy limits if it acts reasonably when it fails to settle such claims.  A reasonable settlement decision includes taking account of the costs of defending the claim.

            Courts have said that the liability insurer is so clearly subject to the standard of liability of a fiduciary, that it requires no citation of authority to say so.  The prevailing standard by far, is to measure a liability insurers' settlement decisions by whether it has acted as a fiduciary.

            To put it another way, the law now is that a liability insurer must give at least equal consideration to the  insured's interests as to its own in determining whether and how to settle the underlying claim against its insureds.  This is the rule followed in States including:

                        1.         Florida.

                        2.         New York.

                        3.         California.

                        4.         New Mexico.

                        5.         Oklahoma, and

                        6.         Wisconsin, for 6 of many examples that have earned attention.   See generally 1 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith §§ 3:31 - 3:35 (3d Edition 2011; 2012 Supplement West Publishing Company).

            This fiduciary standard of liability is not necessarily satisfied, if it ever is, simply by asking whether the liability insurer's settlement decisions were "reasonable".

            The goal of promoting workable standards of conduct in the settlement of cases by liability insurance companies, is not achieved if approval is given to including the costs of defending the claim as even a part of the reason to settle the claim or not to settle it.  Further, the interests in avoiding the costs of defending the claim are almost always the interests of one or more primary carriers and they are not often the interests of a policyholder or its excess carriers.

            The real weight to be given to considering the costs of defending the claim should be on the types of liability policies involved, specifically, on whether the defense expenses are within or outside of the policy limits, and what effects those policy provisions have on the liability insurance company's settlement conduct.  Liability insurance policies are not all the same in how they treat the costs of defending the claim.  It is a stretch to make the standard of extracontractual liability for a Liability Insurer deciding not to settle claims filed against its Insureds, or for the Liability Insurance Company's liability beyond its policy limits for deciding not to settle claims against its Insureds, depend on authorizing "reasonable" decisions to keep a lid on their 'costs of defense' as a permissible factor in deciding whether to settle claims against their Policyholders and other Insureds.

            The cost of defending the claim against a Policyholder is certainly one factor which can and will be taken into account in the defense of claims.  However, while the reality is that Liability Insurance Companies will consider the costs of defending the claim, the law does not now and should not in the future authorize Liability Insurance Companies to prefer their own interests in not spending money for the costs of defending the claim, against the interests of their Insureds in settling those claims simply because a decision not to pay lawyers and others is defensible as "reasonable" in some or all of the cases filed against the Insureds.

            The interests in holding down defense costs usually belong exclusively to a Liability Insurance Company under standard Liability Insurance Policies now in use, and which have been in use for a long time.  When claims are filed against Policyholders and other Insureds, it is ordinarily in their interests to settle those claims.

 

NEXT:  PART TWO OF TWO.

Please Read The Disclaimer.

ARE ANNUITIES IN THE MARKET FOR BAD FAITH?

            Insurance companies which sold annuities with guaranteed returns at 7% two years ago have stopped selling the same annuities now.  They have also stopped allowing contributions to the existing annuities that they guaranteed would have that return of return when they sold those annuities two years ago.    They are reportedly sending form-letter notices that they are no longer accepting contributions to those accounts.  See Paul Sullivan, "Wealth Matters / A Guaranteed Return On an Annuity Has Limits After All" p. B5, col. 1 (New York Times Nat'l ed., "Personal Business" Section, Saturday, September 15, 2012).

            Putting aside all questions surrounding whether these insurance companies can do this, and the substantive methods they are pursuing to do it, there is a separate question of the kind of 'notice' they are providing to the annuity-holders.  Anecdotal evidence is provided in the linked newspaper report, and it is the only evidence we have at the moment.  Whether it is representative or not, time will tell.

            One annuity holder quoted only as "Steve" in the article received a "form letter" in August of this year.  The nondescript envelope looked like junk mail.  It was taped shut and bore the word, "Presorted".   Inside, "Steve" found "a piece of paper folded in threes".  He only read it, he says, because his broker forewarned him to read it because the insurance company that issued Steve's annuity previously announced that it was not going to allow people like Steve to contribute any more money to their annuities.  (It was one of several insurance companies that announced this position.)

            The quality of this 'notice' left something to be desired in Steve's judgment.   He is an advertising copywriter.  "This is not the way you talk to your audience unless you want to make sure that they completely don't understand it, and you don't want them to open it.  I know because I'm in advertising, and I create inclusions like this for companies like Prudential."  "Steve" last name not provided, quoted by Paul Sullivan, "Wealth Matters / A Guaranteed Return On an Annuity Has Limits After All" p. B5, col. 1 (New York Times Nat'l ed., "Personal Business" Section, Saturday, September 15, 2012).  Is this in Good Faith?  If it is not Good Faith conduct, and if the conduct is actionable, is it defensible?  You have got to wonder.  See generally 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 3:3 "Informing the insured:  In general" (3d Edition 2011; 2012 Supplement West Publishing Company).

 

Please Read The Disclaimer.

 

MEDITATIONS.

            Recent newspaper reports have led to speculation about the influence of insurance of the conduct of Catholic Church leaders.  The focus of this article will be on the question of which kinds of Insurance Coverages might apply to the reported conduct of a sample case now (kind of) in the news.   A criminal conviction of a Catholic Bishop in a Kansas City Court on Thursday was reported in the  newspapers on Saturday.  The timing could not have been better if someone wanted to minimize the impact.

            According to the newspaper reports, a Catholic Bishop and a Catholic Diocese settled criminal charges against them in Kansas City.  The charges included an alleged misdemeanor for failing to report suspected child abuse.

            These charges were reportedly resolved against the bishop without a Jury Trial, at his request.  The bishop agreed with the prosecutor to a stipulated set of facts.  The charges against the Catholic Diocese were dropped.  Laurie Goodstein, "Defying Civil and Canon Laws, Church Failed to Stop a Priest" p. A1, col. 1 (New York Times Nat'l ed., Saturday, September 8, 2012).

            Before reaching out to more of the newspaper reporting, this case presents more than one noteworthy feature which deserves comment.  It seems unusual that a criminal defendant who for a long while has been scheduled for a date-certain Jury Trial of his case, consented to a Trial by a Judge immediately and with little notice.  I do not practice criminal law, but this strikes me as unusual conduct for a criminal defendant.

            In addition, it seems unusual that a criminal defendant in this case apparently did not 'plead' to the charges, but agreed that the facts were true.  This may not have the same evidentiary effect in pending civil lawsuits filed against the bishop and the Diocese after the alleged child abuse, but "stipulating to the facts" of a crime is certainly the functional equivalent of entering a guilty plea whether it is a usual or unusual procedure.

            The criminal charges against the Catholic Diocese have been dropped.  The bishop faced jail time but he will not have to serve any.  Many other misdemeanor defendants serve jail time.  Further, the bishop faced a monetary penalty but he will not have to pay any.  Again, many other misdemeanor defendants pay their fines.  Instead, the bishop was sentenced to serve two years on probation.  Reportedly, this was not among the possibilities usually available to defendants charged with such crimes in Kansas City.

            Now on to the newspaper reporting of the facts of this case.  They concern Robert W. Finn, currently and at all material times the Bishop of the Catholic Diocese of Kansas City-St. Joseph.  Bishop Finn was scheduled to defend a criminal Jury Trial which was set in the near future.  The charges against him included failing to report suspected child abuse.  A then-priest employed in Bishop Finn's Diocese, named Shawn Ratigan, allegedly exposed the genitals of small girls and then took photographs of them, among other things.

The photographs were found on Ratigan's laptop by a computer tech who tried to fix the computer in May or June, 2010.  Upset with what he found there, the tech told a deacon in his parish, who apparently told superiors.

            It appears that the prosecutor expected the evidence to reflect that Bishop Finn was also warned about Ratigan's behaviors, including by the principal of a parochial school located next to Ratigan's parish, and by another computer tech, this one employed by the Diocese who had also witnessed Ratigan's laptop photos.  "The next day, Dec. 17, 2010, Father Ratigan attempted suicide.  He left messages apologizing to his family for 'the harm caused to the children or you.'"  Laurie Goodstein, "Defying Civil and Canon Laws, Church Failed to Stop a Priest" p. A1, col. 1 (New York Times Nat'l ed., Saturday, September 8, 2012).

            The prosecution also apparently expected the evidence to show that Bishop Finn assigned Ratigan to a position where he allowed Ratigan to have contact with children.  The extent or type of the permitted contact may have been  disputed.  It is not disputed that the bishop did not tell anyone what he knew about Ratigan at that time. 

            In May, 2011 Ratigan was arrested.  He was charged with possession of child pornography.  He was convicted in August, 2012.  Ratigan still reportedly awaits sentencing.

            Bishop Finn changed his mind last week about a Jury Trial on his criminal charges.  As noted, he effectively entered a guilty plea to the misdemeanor of failing to report suspected child abuse.   The bishop's criminal Trial then reportedly took less than an hour and a half.  That includes the time it took for the bishop to say he was sorry.  Laurie Goodstein, "Defying Civil and Canon Laws, Church Failed to Stop a Priest" p. A1, col. 1 (New York Times Nat'l ed., Saturday, September 8, 2012).

            We are familiar with how lawyers think, you and I.  It seems likely that Robert Finn's defense lawyers evaluated the evidence and told their client that he, Bishop Finn, faced a high risk of being convicted.

            For the Diocese, which will undoubtedly be argued to be a unit of the Catholic Church and subject to the command and control of the Vatican, it is worth speculating what consequences a conviction would carry for its Insurance Coverage.

            I do not know for sure whether, under Missouri law, evidence of a felony or misdemeanor conviction would have been admissible in any later proceedings against the bishop or the Diocese.  However, as noted, there are reportedly civil lawsuits pending at this time against them, filed on behalf of the children and their families in question.  Insurance Coverage questions abound for all kinds of Insurance, including Director's and Officer's Insurance -- or the equivalent -- for the Diocese and for the bishop.  Was the bishop an "officer" or "director"?  Is the Vatican or the Diocese responsible for the bishop's conduct as a matter of legal liability in this matter?

            I was under the impression that bishops do not make decisions independently of the Vatican command.  If the Vatican, or the Catholic Diocese, would be held liable for the conduct of Bishop Finn, what other kinds of Insurance Coverage could be available to any of them?

            Employer Practices Liability Insurance may be implicated.  Was the Diocese the "employer" of Bishop Finn?  Does the fact that the Vatican adopted disclosure practices that the bishop did not reportedly obey, have an effect on EPLI Coverage, for the bishop or for the Diocese, or anyone else?

            A final possibility is Commercial or Comprehensive General Liability Insurance.  That would likely raise questions of the "intentional act" Exclusion (or perhaps more accurately called the "intentional damages" Exclusion).  In addition, was there an occurrence neither expected nor intended from the standpoint of the insured?  If so, how many "occurrences" were here?

            These and many other potential Insurance Coverage questions arise from this case.  This would be a good focus for a discussion of these issues.  Forward your thoughts to me by mail or EMail.  I myself do not necessarily have the answers in this one.  I look forward to hearing from you.

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More About Experts in Insurance Cases.

     Experts in Insurance Coverage and Insurance Bad Faith Cases are providing many opportunities for Judicial Decisions.  See 1 Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith"  §  8:17 (West Third Edition 2011, 2012 Supplement) (addressing reported cases involving issues of Expert Testimony in Third-Party Bad Faith Cases); 2 id.  § 12:18 (discussing case law developing around issues concerning reception of Expert Testimony in First-Party Insurance Bad Faith Cases).

      In TRAX, LLC v. Continental Cas. Co., 2012 WL 377042 *7 (N.D. Ill. August 29, 2012), Download TRAX, LLC v. Continental Cas. Co. (N.D. Ill. Amended Memorandum Opinion and Order Filed August 29, 2012) PUBLIC ACCESS, the issue was allocation.  The Policyholder, TRAX, settled an underlying lawsuit against it.  Continental refused to pay for it, contending that at least part of the settlement is attributable to a claim not covered by its Global Technology Errors & Omissions Policy.  (PACER, the online docket of the Federal Courts, reflects that Continental filed a Notice of Appeal on September 5, 2012).

     To say again, the issue was allocation:  How much of the underlying settlement, if any, was allocable to covered claims?  Continental relied on the Testimony of an Expert whose Opinion was that the underlying settlement should be apportioned 50-50 between covered and noncovered claims.  The District Court granted TRAX's Motion to Exclude the Continental Expert's Testimony, however.  TRAX's Motion was granted in part on the ground that the Expert in question never spoke to anyone who was at the Settlement Conference in the underlying case and the Expert did not "read the participants' depositions prior to preparing his written opinion."  Trax, LLC v. Continental Cas. Co., 2012 WL 377042 *7 (N.D. Ill. August 29, 2012).  [Emphasis added.]  The Court granted the Plaintiff's-Policyholder's Motion to Exclude the Testimony of Continental's Expert in this case on the ground that the Testimony was "irrelevant and appeared to not be based on sufficient information".  The Testimony therefore "failed to meet the requirements of Fed.R.Evid. 702."  Trax, LLC v. Continental Cas. Co., 2012 WL 377042 *7 (N.D. Ill. August 29, 2012).

     After making that ruling, the District Court held that TRAX met its burden of demonstrating that the "entire" underlying settlement "was covered by the Policy," whereas Continental had failed to show in this case "how," in the words of the District Court, "any of the policy exclusions it presents would be applicable and exclude coverage of the settlement."  Trax, LLC v. Continental Cas. Co., 2012 WL 377042 *7 (N.D. Ill. August 29, 2012).  [Emphasis added.]

The issue of allocating damages arises frequently in Insurance Cases and Expert Testimony is frequently offered on that important issue.  See, for example, the post here on March 8, 2012, which was one of 14 posts on Experts in Insurance Cases here and on Insurance Claims and Issues Blog in March, 2012.

   For an earnest post from the viewpoint of another litigator, see also Steve Groth, "Helping Your Expert Thrive in the Hot Seat" posted on September 5, 2012 on Insurance Blog.Bose Law Firm (Indiana).

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EXPERTS RETAINED FOR PARTIES MEDIATING, AND FOR MEDIATOR.

     The Maryland Mediation Construction Law Deskbook has put forward a suggestion directed at the complexities of construction mediation.  An Expert can be used to assist the parties at the joint session, and an Expert can also be used to advise a party privately during caucuses or breakout sessions.  J. Snowden Stanley, Jr., Robert L. Wright & Adrian L. Bastianelli, III, "Mediation, Arbitration and Other ADR Techniques," published as Chapter 16 of the Maryland Construction Law Handbook (2012), published by the Maryland Institute for Continuing Professional Education of Lawyers, Inc. © 2012 MSBA and © 2012 Thomson Reuters (subscription required).

     "An expert can also be used as a consultant to the mediator."  When the Mediator is not versed in the technical subject matter, "the solution may be for the parties to agree to hire an expert to advise the mediator or serve as a co-mediator."  Id.

     This suggestion is equally likely to be useful in Mediations involving complicated Insurance issues of Coverage or of Good Faith vs. Bad Faith.

 Mediation is a familiar subject particularly Mediation of Insurance issues.  The author is a Certified Florida Mediator for Appeals, Circuit Court litigation, and County Court cases.

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Gist of the Action "Doctrine" Bars Pennsylvania Bad Faith Claim.

    In Download Timothy v. State Farm Fire & Casualty (W.D. Pa. August 23, 2012), a Federal Court was faced with four counts of a Bad Faith, Breach of First-Party Insurance Contract claim.  The breach of contract count, and all the other counts, related to the Defendant's low payment and alleged investigation failures concerning tornado and other "weather event" damage claims under a Homeowner's Policy.

    The Federal Court first addressed a count which appeared to advance a common law Bad Faith claim under Pennsylvania law in that case.  The Court dismissed the claim alleged in that count by invoking Pennsylvania's gist of the action "doctrine".  This sounds a lot like other rules applied by other names in other jurisdictions, in which a party will not be permitted to claim tort damages for an alleged breach of contract.  In Florida, for example, this might be called the "economic loss doctrine".

    The Court in that case held:

Specifically, the doctrine serves to bar tort claims:

1) arising solely from a contract between the parties, 

2) where the duties allegedly breached were created and grounded in the contract itself, 

3) where the liability stems from a contract, or 

4) where the tort claim essentially duplicates a breach of contract claim or the success of which is wholly dependent on the terms of a contract.

 Download Timothy v. State Farm Fire & Casualty *3-*4 (W.D. Pa. August 23, 2012).  After concluding its application of the Pennsylvania "gist of the action doctrine" to dismiss the second count in that case, the Federal Court observed that Pennsylvania does not allow for First-Party Bad Faith at common law anyway.

    The Federal Judge then dismissed two other counts under attack for failure to state a claim, which were alleged statutory claims under Pennsylvania's Bad Faith Statute and under Pennsylvania's unfair and deceptive practices act, respectively.  Having dismissed three of the four counts, only the claim for alleged Breach of Contract remained.  Since that claim was for less than the jurisdictional limit, the Federal Court dismissed that claim too, and remanded the case to Pennsylvania State Court for disposition.

Dennis Wall is a featured speaker at this year's National Forum on Bad Faith Litigation in Orlando, Florida on November 28 and 29, 2012.  Readers of this blog can receive a $200.00 discount on registration by entering the code, "BFB 200," at the American Conference Institute's website:  www.americanconference.com/badfaith.

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