Claims and Bad Faith Law Blog

PREMATURITY DEFENSE TO FLORIDA STATUTORY FIRST-PARTY BAD FAITH ACTIONS.

In a change of pace, this article will begin on Insurance Claims Bad Faith Law Blog, and continue to completion on Insurance Claims and Issues Weblog.  Some of the following information appeared in different form previously on this Blog, and it is presented here in a condensed usable format at this time.

    There are two conditions to all First-Party Bad Faith lawsuits in Florida.  All First-Party Bad Faith lawsuits in Florida are statutory.  Their common base is Fla. Stat. § 624.155.

THE FIRST OF TWO CONDITIONS:

            First, the First-Party Insurance Company raises no defense which would defeat Coverage including but not limited to situations where the Coverage Defense has been raised and adjudicated against the Insurance Company by a Florida Court of competent jurisdiction.

THE SECOND CONDITION:

            Second, the actual extent of the Insured's loss has been finally determined, meaning that a recognized determination has been made as to liability and the extent of damages.

• It has recently been held that an Appraisal Award is a "final determination" sufficient to satisfy the second condition.  Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Co., 2012 WL 3822215 *2 (Fla. 4th DCA September 5, 2012).

 

• Previously, it was held that an Arbitration Award similarly can be a "final determination."

 

• The Florida Courts have uniformly held that there can be no "final determination" required to bring a First-Party Bad Faith action, where a Breach of Contract claim is pending.  A recent iteration of this holding came in the case of Lime Bay Condominium, Inc. v. State Farm Florida Insurance Co., 94 So. 3d 698, 699 (Fla. 3d DCA 2012). 

To be continued, on Insurance Claims and Issues Weblog ......

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 will be speaking both days.  On November 28, 2012 I will be on a panel which will address Innovative Litigation Strategies in Bad Faith Cases.  My area will focus on Expert Witnesses in Insurance Cases.  ON November 29, 2012, I will be leading a Florida Workshop on Bad Faith, all at Disney World in Orlando, Florida.  I am told that if you mention my name should you choose to register for this Forum through October 31, 2012, you can receive a discount on registration.  Mention my name as a speaker when registering by telephone to get the discount.  The ACI contact information is on the American Conference Institute's website at  www.americanconference.com/badfaith.

Please Read The Disclaimer.

MORTGAGE AND TITLE INSURANCE OVERBURDENED BY MORTGAGE SERVICER FRAUD.

TELLING  THE TRUTH, DROPPED LIKE A HOT POTATO.

             These are the opening words they don't want you to read:  "Investment banks caused the Great Recession."  And this is the article they don't want you to read:  "Regulators, Like People, Matter.  Banks Choose Anyone Except Insurance Regulators," posted on Insurance Claims and Bad Faith Law Blog on Tuesday, October 23, 2012.

            On its own website, Executive Counsel Magazine describes its readers as "decision-makers who embrace the challenges of succeeding in an increasingly complicated regulatory environment."  The magazine provides Executive Counsel Daily Digest, an EMail aggregation of blog entries related to their readers.  For many months, my Insurance Claims and Bad Faith Law Blog and my Insurance Claims and Issues Weblog were aggregated.

            Both of my blogs were dropped from the Executive Counsel Daily Digest aggregator the day after the article was published, "Regulators, Like People, Matter.  Banks Choose Anyone Except Insurance Regulators," and these words in it:  "Investment banks caused the Great Recession."

            Not depositary bankers, where individuals and small businesses, like me and mine, make deposits.  And not people from Main Street or small businesses.

            You would have thought this was a radical new thought.  It wasn't and isn't.  It is simply, plainly the known truth.  I am proud to be one of many people to tell you about it.

Please Read The Disclaimer.

Mortgage Servicers, Mortgage Settlement: Dealing Fairly in Financial Good Faith.

     It appears that Mortgage Servicers may have had the tools all along to modify Mortgages including to forgive principal.  See Statement of Hon. Sheila C. Bair, Chair of the Federal Deposit Insurance Corporation, reported by Martin Crustinger in an Associated Press copyrighted story, "Fed Urges Loan Companies to Help Prevent Mortgage Defaults," p. A5, col. 3 (Times-News, Twin Falls, Idaho, Wed., September 5, 2007) available on page 5 of this pdf posted online through twinfallspubliclibrary.org). 

    If that is so, then there was never any need for the Mortgage Servicing Fraud Settlement earlier this year -- except that the investment banks who were also the Mortgage Servicers, or who acquired the Mortgage Servicers, wanted immunity.

UPDATE ON JULY 27, 2012 ARTICLE HERE, "SHAME ON YOU, SHAUN. THAT'LL BE TEN HAIL MARYS, ... One Our Father, and One Glory Be.  Now say a Good Act of Contrition."

    In the article, I wrote:

One further note of, frankly, what is either fantasy or more stuff for Mr. Donovan to confess the next time he unburdens himself in the Confessional.  He says that the settlement agreement "also provides an additional $334 million in state aid" that Pamela Bondi, Florida Attorney General, will use "to help homeowners through proven tools like housing counseling."...  And if you believe that, Mr. Donovan and Ms. Bondi have some swamp land to sell you in South Florida as they say.

It is only now being widely reported that the Florida Legislature has other plans for that money, regardless of what Ms. Bondi says.

 Please Read The Disclaimer.

REGULATORS, LIKE PEOPLE, MATTER.

Banks Choose Anyone Except Insurance Regulators.

 "Financial institutions cannot be relied upon to do the right thing, when doing the wrong thing will line their pockets.  Regulators, not banks, need to set the rules and they must be clear, straightforward, and readily enforceable....  It's time to stop timidly working around the edges and get the job done."

   Sheila C. Bair, former Chair of the Federal Deposit Insurance Commission and current Chair of  the Systemic Risk Council, in an op-ed column entitled, "Two Years After Dodd-Frank, Why Isn't Anything Fixed?"  published online by Yahoo! Finance, The Exchange, Friday, July 20, 2012.

 

            Investment banks caused the Great Recession.  That is a fact.

            It is also unquestionable that for four years, since October, 2008, investment banks and their regulators have tried to divert everyone's attention away from investment banks and their regulators.  "[T]axpayers and the many smaller banks that pay into the F.D.I.C. fund that insures bank deposits were those most likely to be assigned responsibility for the bailout costs, Ms. Bair writes.  Needless to say, these people had no seats at the rescue tables."  Gretchen Morgenson, "Fair Game / Big Questions From a Bailout Eyewitness" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, October 14, 2012), citing Sheila Bair's recently published Book, "Bull By The Horns:  Fighting to Save Main Street From Wall Street and Wall Street From Itself".

            Ms. Bair's observations about Citigroup's former CEO, Vikram Pandit, provide a past example -- and a present insight.  She writes that Mr. Pandit and Citigroup's regulator in October, 2008, Mr. Timothy Geithner of the New York Federal Reserve Bank, held her responsible for Wells Fargo rather than Citigroup acquiring Wachovia and its subprime mortgage loan department.

            Her description of Mr. Pandit is insightful, as she explained why she thought that Mr. Pandit was a poor choice to become the CEO at Citi:

He was a hedge fund manager by occupation and one with a mixed record at that.  He had no experience as a commercial banker, yet now he was heading one of the biggest banks in the country.

Sheila C. Bair, "Bull by the Horns:  Fighting to Save Main Street From Wall Street and Wall Street From Itself" (Free Press , a division of Simon & Schuster, Inc., 2012),  excerpted online in CNN Money (September 20, 2012) and Fortune Magazine (October 8, 2012).

            Those who have ears to hear, let them hear.  

            The price of the Great Recession Bailouts includes enormous unaccounted costs for "the subsidies banks received in cheap capital, low-interest-rate loans and debt guarantees."  ."  Interview with Sheila C. Bair reported by Gretchen Morgenson in "Fair Game / Big Questions From a Bailout Eyewitness" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, October 14, 2012).  The costs of the Great Recession also include those falling upon Mortgage Insurance Companies and Title Insurance Companies for the Mortgage defaults engineered by the investment banks.  See the Categories on this Blog, "Mortgage Insurance" and "Title Insurance," and the corresponding Categories on Insurance Claims and Issues Web Log.

Please Read The Disclaimer.

DUDE, THE NAME ALONE IS WORTH THE TRIP!

            In its decision in the case of Ass Kickin Ranch, LLC  [I'm not making this up]  v. North Star Mutual Insurance Co., 2012 WL 4960082 (S.D. October 17, 2012), the Supreme Court of South Dakota silently aligned South Dakota with all the many other jurisdictions in which the Courts have held that where there is no Insurance Coverage, there is no Insurance Bad Faith.

            This was a First-Party Insurance case involving damage caused by a fire to two unassembled wind turbines.  The Policyholder Ranch claimed Coverage from North Star Mutual "for [damage to] unscheduled farm personal property".  North Star Mutual denied all Coverage because of "Coverage F, subparagraph 5(g), [under which] the policy excluded coverage for 'fences, windmills, windchargers, or their towers.'"  Ass Kickin Ranch, LLC v. North Star Mutual Insurance Co., 2012 WL 4960082 *1, ¶¶ 1, 4 (S.D. October 17, 2012).

            The Supreme Court of South Dakota applied what it said is the plain meaning of this Insurance Contract.  In its view, the Ranch's unassembled wind turbines were clearly and plainly excluded "windmills" and "windchargers".  The "plain and ordinary meaning of these words" included the "unassembled wind turbines" at issue, the Court held.  Ass Kickin Ranch, LLC v. North Star Mutual Insurance Co., 2012 WL 4960082 *3, ¶ 13 (S.D. October 17, 2012).

            The Supreme Court never addressed the Bad Faith claim directly, however.  It expressly mentioned the  Bad Faith claim only once, at the beginning of its opinion in this case and only to describe the procedural posture of the appeal.  The Court simply stated at the outset that the Policyholder Ranch claimed that North Star breached the First-Party Insurance Contract, "and acted in bad faith in denying coverage".  Ass Kickin Ranch, LLC v. North Star Mutual Insurance Co., 2012 WL 4960082 *1, ¶ 1 (S.D. October 17, 2012).

            The Court never mentioned Bad Faith again.  It did, however, affirm the Trial Court's grant of North Star's Motion for Summary Judgment.  Ass Kickin Ranch, LLC v. North Star Mutual Insurance Co., 2012 WL 4960082 *6, ¶ 23 (S.D. October 17, 2012).

            The actual holding on the Bad Faith claim in this case, to the effect that where there is no Insurance Coverage, there is no Bad Faith, is the majority view of Courts in United States jurisdictions whether in Third-Party or Liability Insurance cases, or in First-Party cases of just about any kind.  See DENNIS J. WALL, "LITIGATION AND PREVENTION OF INSURER BAD FAITH" §§ 5:14, 5:24, 5:49 ("Coverage or Policy Defenses" to claims of third -party bad faith failure to settle, wrongful refusal to defend, and inadequacy of defense, respectively) & § 11:1 ("Coverage and policy defenses to insurance coverage" in first-party cases)(Third Edition, 2012 Supplement, West Publishing Co.).

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 October 31, 2012, you can receive a discount on registration.  Mention my name as a speaker when registering by telephone to get the discount.  The ACI contact information is on the American Conference Institute's website at  www.americanconference.com/badfaith.

Please Read The Disclaimer.

"GOTCHA": $125,000 BECOMES $5,000 WHEN SETTLING WITHOUT SUBMITTING WRITTEN POL.

            It may not be a universal law.  But it is a 'best practice' generally to submit a written Proof of Loss ("POL") as a part of making any First-Party Insurance Claim.  If it is in writing, not only is it a "Proof of Loss," but it is a clearly provable Proof of Loss in Court.

            In Katie Realty, Ltd. v. Louisiana Citizens Property Insurance Corp., 2012 WL 4901067 (La. October 16, 2012), the corporate Policyholder made a claim on its Citizens Commercial Property Insurance Policy for Property Damage caused by Hurricane Gustav.  The Policyholder succeeded.  The claim was settled at Mediation for a Quarter of a Million Dollars ($250,000.00).

            Unfortunately, "Citizens failed to timely pay the settlement funds".  Katie Realty then "filed a motion to enforce settlement and to assess penalties pursuant to La. Rev. Stat. §§ 22:1892 and 1973."  The Louisiana penalties statutes invoked by Katie Realty trigger a penalty for delayed payment and, collectively, they also import a duty of Good Faith and Fair Dealing with additional penalties in the event of a finding of arbitrary and capricious behavior or 'Bad Faith' on the part of the Insurance Company.

            Citizens was assessed total penalties of $125,000.00 in this case for the delayed payment and for alleged Bad Faith in delaying the payment.  Katie Realty, Ltd. v. Louisiana Citizens Property Insurance Corp., 2012 WL 4901067 *1 (La. October 16, 2012).  On appeal, the Louisiana Supreme Court reduced the penalties assessment from $125,000.00 to $5,000.00.

            The reason for the reduction rests on the fact that Katie Realty apparently mediated and settled its Property Insurance Claim without submitting a satisfactory Proof of Loss.  Katie Realty, Ltd. v. Louisiana Citizens Property Insurance Corp., 2012 WL 4901067 *1, *6 (La. October 16, 2012).

            The Louisiana penalties statutes invoked by Katie in this case all require satisfactory Proofs of Loss.  Without them, only nominal penalties could be assessed under the Louisiana statutes here.  This legal result was reached by the Louisiana Supreme Court redefining 'proofs of loss' to mean 'proof of claim' after the Trial Court and Appellate Court had ruled that the settlement was a legally sufficient Proof of Loss to trigger the penalties statutes.

            Here, the payment which was delayed was payment of a settlement.  That made all the difference to the Louisiana Supreme Court.  "A settlement, however, is not an insurance claim arising under a contract of insurance."  Katie Realty, Ltd. v. Louisiana Citizens Property Insurance Corp., 2012 WL 4901067 *7 (La. October 16, 2012).  Therefore, said the Supreme Court, not Bad Faith penalties but only "a penalty award of $5,000 is appropriate and warranted."  Katie Realty, Ltd. v. Louisiana Citizens Property Insurance Corp., 2012 WL 4901067 *8 (La. October 16, 2012).

Please Read The Disclaimer.

FIRST-PARTY BAD FAITH IN FLORIDA: RECENT CASES.

            It is well settled in Florida that a statutory First-Party Bad Faith action is premature until two conditions have been satisfied:  First, the First-Party Insurance Company raises no defense which would defeat Coverage including but not limited to situations where the Coverage Defense has been raised and adjudicated against the Insurance Company by a Florida Court of competent jurisdiction; and, Second, the actual extent of the Insured's loss has been finally determined, meaning that a recognized determination has been made as to liability and the extent of damages.

            Recognizing these twin conditions, a Florida Appellate Court has recently held that an Appraisal Award can qualify as a required "final determination".  Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Co., 2012 WL 3822215 *2 (Fla. 4th DCA September 5, 2012).  This decision appears to resolve an open question of Florida law as to whether an Appraisal Award can ever qualify as a final determination of the Insured's loss, meaning both liability and the extent of damages, for purposes of Florida's Bad Faith Statute, Fla. Stat. § 624.155.  See 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 11:24 (2012 Supplement, 3d Edition West Publishing Company).

            It has also been recently held, although not deciding an open question in Florida law, that a Policyholder pursuing a statutory First-Party Bad Faith cause of action cannot allege that there has been a final determination of liability where the Policyholder's Breach of Contract case is still pending.  Lime Bay Condominium, Inc. v. State Farm Florida Insurance. Co., 94 So. 3d 698, 699 (Fla. 3d DCA 2012).  See, in addition, Maraist v. State Farm Mut. Auto. Ins. Co., 2012 WL 3536759 *1 (N.D. Fla. 2012)(granting Underinsured Motorist Carrier's Motion to Dismiss its Insured's Bad-Faith Claim because Florida law "requires not an allegation but a determination" of liability and the extent of the Insured's damages [emphasis added]).

            In another recent case, a Federal Court effectively held that under Florida law, a First-Party Insurance Carrier cannot close its eyes to the extent of information it could obtain about its Insured's damages where the available information indicated an investigation of the Claim was called for.  In the case of King v. GEICO, 2012 WL 4052271 *4 (M.D. Fla. September 13, 2012), GEICO's Insured filed a First-Party Bad Faith lawsuit against GEICO based in part on these allegations concerning a claim as to which GEICO did not conduct any additional investigation into the extent of its Insured's, Mr. King's, injuries after it received its Insured's Settlement Offer nor after GEICO received the Insured's Civil Remedy Notice of Insurer Violation of Florida's Bad-Faith Statute:

Although having the right to do so during the sixty-day window following the filing of the CRN, GEICO never attempted to obtain a statement under oath from King, to receive medical authorization allowing access to King's medical providers and treating physicians, or to conduct a compulsory medical examination of King to ascertain the severity of his damages.  Nor did GEICO seek review of King's medical records by a physician or an opinion from an outside attorney as to the value of King's claim.  In sum, GEICO made no efforts to investigate the claim beyond review of the demand package, either at the time of the initial settlement offer or upon receipt of the CRN.

            The Court held that GEICO "presents a strong argument that it acted in good faith" at the time it received the CRN from its Insured, by pointing to its lack of actual knowledge of facts developed later which would show that its Insured's injuries were severe.  Nonetheless, GEICO's Motion for Summary Judgment on this record was denied "because a reasonable jury could find that, under the totality of the circumstances, GEICO's failure to further investigate King's claim at the time it received the CRN amounted to bad faith".  King v. GEICO, 2012 WL 4052271 *4 (M.D. Fla. September 13, 2012).  [Emphasis added.]

            The Court further held that the Civil Remedy Notice at issue in that case was sufficiently specific to satisfy Florida law, in part because "[g]iven the settlement letter detailing King's medical expenses and prognosis received by GEICO just two months prior to the CRN, common sense dictates how GEICO might have responded given the information provided."  King v. GEICO, 2012 WL 4052271 *8 (M.D. Fla. September 13, 2012).

Please Read The Disclaimer.

 

SPECIALIZED 'CGL' INSURANCE STILL DOES NOT COVER CONSTRUCTION DELAYS.

No Bad Faith in Denying Coverage Under Such a CGL Where Coverage Does Not Exist, Washington Court Holds.

             Delays have always been a problem in construction projects.  Judging by the development of specialized Insurance products recently, it is a growing drag on General Contractors' profits.

            In the case of Wellman & Zuck, Inc. v. Hartford Fire Insurance Co., 285 P.3d 892 (Wash. App. Ct. September 17, 2012), a General Contractor obtained "specialized" Insurance.  The Court called the Defendant Insurance Company a "specialized Owners and Contractors Protective (OCP) Insurer".  The "OCP Insurer" in that case was sued for breach of contract and 'Bad Faith' after it denied all Coverage including a Defense to an underlying lawsuit filed against the G.C.  In the underlying lawsuit, damages were claimed against the G.C. involving alleged construction delays.

            The G.C. defended on the basis that a Sub caused the delays.  The G.C. sought Coverage under its OCP Policy and assigned all its rights against the OCP Insurer.

            On appeal, the Washington Appellate Court held that the OCP Policy simply does not provide any Coverage, including a Defense, against damages claims based on alleged construction delays.  Furthermore, since the OCP Insurer in that case did not wrongfully deny a Defense, in Washington State as in most U.S. jurisdictions the OCP Insurer could not be held liable for consequential damages and other 'Bad Faith' damages as a result.  See Wellman & Zuck, Inc. v. Hartford Fire Insurance Co., 285 P.3d 892, 900 ¶¶ 29-30 (Wash. App. Ct. September 17, 2012),

            In sum, the case presents something old, something new.  The 'something old' is the holding that 'where there is no Coverage, there is no Bad Faith,' is another holding representing the majority view on the subject, although there is significant authority to the contrary.  The 'something new' is that even the development and purchase of "specialized Owners and Contractors Protective (OCP) Insurance" will not afford Coverage for damages claimed from construction delays.

Please Read The Disclaimer.

The Pitch: Forced Insurance Fastball. Comment and YOU MAKE THE CALL.

    Fannie Mae is dealing with force placed Insurance.  That is Insurance under a contract provision that confers the power on a Lender to place Insurance on a Home or other collateral at the expense of a Mortgagor-Borrower.

    The typical contract provision applies where the Mortgagor-Borrower has not kept up with Insurance payments on the  Mortgagor's Home.  Recently force placed insurance has caught attention for reported abuses in which such Insurance has been forced upon Homeowners who are not delinquent in paying their own Homeowner's Policy Premiums, or in which such Insurance has been placed by mortgage servicers with companies which which they, the mortgage servicers, allegedly have a financial relationship involving their receipt of a percentage of the new Premium money.

    Fannie Mae has adopted "new mortgage servicer guidelines" based on an inherent recognition of a special relationship between the Lender-Mortgagee and the Borrower-Mortgagor under a contract that confers a "force-placed Insurance" power on the Lender-Mortgagee.  Download Fannie Mae Mortgage Servicer Guidelines.svc1204.

    The Courts have applied a developing recognition of many kinds of "special relationships" in which one party reposes special confidence or trust in another party.  These special relationships, like the one recognized by Fannie Mae's new mortgage servicer guidelines, have drawn the law's special attention because of the potential for abuse by the party with the power in such relationships, and the terribly damaging effects on the weaker party when that abuse occurs.  See generally 1 Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §§ 3:31 - 3:35 (Third Edition 2011, 2012 Supplement West Publishing Co.).

    Viewed in that light, the basic provisions of the new mortgage servicer guidelines make perfect sense.  They include:

• It is in the Mortgagor's-Borrower's best interest to keep the pre-existing Insurance in place whenever possible and the mortgage servicer is required to act in ways designed to accomplish that result:  The mortgage servicer is required to keep the Mortgagee's-Borrower's own Homeowner's Insurance Policy in effect if at all possible, "even if that means advancing money to cover the past-due premium."
• Disclosure:  The mortgage servicer is required by Fannie Mae's new guidelines to contact the Mortgagee-Borrower at least two times and inform them that there is a greater Premium involved in force-placed Insurance (which will be added to the monthly Mortgage payment whether the Borrower likes it or not), and that the force-placed substitute will provide Insurance Coverage only for the structure, not the contents of the home.
• Reimbursement:  The mortgage servicer is also required by the new guidelines to refund Premiums on canceled policies to Borrowers who themselves find and pay for the contracted Insurance "within 15 days of receiving evidence of other coverage."

Lisa Prevost, "Mortgages / The High Price of 'Forced' Insurance" (New York Times Online, posted and published Thursday, October 4, 2012).

    Here is where you come in, good reader.  The Consumer Financial Protection Bureau has pursued and is pursuing seven of what it calls "rulemakings" with related requirements on this issue.  Most of these "rulemakings" generally take effect on January 21, 2013 says the CFPB, but two have Comment Periods which close on Tuesday, October 9, 2012.  Here are links to both and to hyperlink portals through which you can leave your Comments as you may wish:  2012 Truth in Lending Act (Regulation Z) Mortgage Servicing and although both relate to the issue, the more pertinent as between the two proposed regulations: 2012 Real Estate Settlement Procedures Act (Regulation X) Mortgage Servicing Proposal.

    Act now.  This is the time of year when Major League Baseball teams are in the playoffs and Umpires are there making the call.  This is your chance to Comment and Make the Call on something that is more important even than baseball to all the Mortgagors and Mortgagees who are caught in the Hephaistos chain of force placed insurance.

Please Read The Disclaimer.

"Lies, Lies, And Da*n Lies": RMBS Born From "Systemic Fraud".

    A new complaint was filed on Monday, October 1, 2012 arising out of residential mortgage-backed securities ("RMBS"), an investment vehicle at the bottom (with other vehicles) of the current Great Recession.  The complaint is by the State of New York against JPMorgan Securities, JPMorgan Chase, and EMC Mortgage.

      Basically the complaint is based on two sets of alleged manifestations of fraud, deception, and misrepresentation:  First, in promoting and selling RMBS, and second, "systemic fraud" in failing and refusing to correct "defects" after due diligence and quality control procedures revealed that RMBS presented serious problems to the finances of investors and Homeowners.  Here is a copy of the complaint:  Download Complaint.New York v. JP Morgan Securities LLC etc. et al (Filed in N.Y. Supreme Court on Monday, Octo ber 1, 2012). 

    This is reportedly the first time that the claim of systemic fraud has been collectively alleged against the promoters and servicers of residential mortgage-backed securities as a class, as it were.  Gretchen Morgenson, "JPMorgan Unit is Sued Over Mortgage Securities Pools" (New York Times Online, posted October 1, 2012).  The reason is a New York law, General Business Law  352, et seq., known as the Martin Act, which allows for broad claims of fraud against groups of financial actors allegedly committing fraud.  See Michael J. de la Merced, "In JPMorgan Case, the Martin Act Rides Again" (Dealbook Blog on New York Times Online, posted October 2, 2012).  More about New York's Martin Act later.

    Another commentator who reads the complaint like it is a newspaper, finds that the complaint does not contain any news and is not newsworthy.  Peter J. Henning, "In JPMorgan Suit, a Lack of New News" (Dealblook Blog on New York Times Online, posted October 2, 2012).

    Perhaps the new complaint presents issues of Good Faith and Fair Dealing that are worth a little more attention.  Those issues will be explored here.

    More to come.

    Please Read The Disclaimer. 

Incurred Costs of Defense May Not Be What You Think.

     Proposals to allow Liability Insurance Companies to always consider the costs of defense in determining whether they may be subject to standards of Good Faith and Fair Dealing in settling claims against their Insureds, may not take account of the whole picture.  In fact, taking account of the costs of defense in deciding whether, how or when to settle cases against somebody else, or to settle cases against yourself, sometimes seems counter-intuitive. 

        Take for example the recent case of Cincinnati Insurance Co. v. Amerisure Insurance Co., 2012 WL 4033724 (S.D. Ala. September 12, 2012).  Cincinnati Insurance "paid the sum of $168,842.06 in [defense] attorney's fees and expenses," presumably before it decided on paying a $25,000 settlement on behalf of an Insured, a General Contractor sued over alleged construction defects.

     In an analogous case, albeit a First-Party Bad Faith case in which the Insurance Company defended itself, the Pennsylvania Superior Court held on appeal that when the case is retried, the Trial Court should admit evidence that the Insurance Company paid its defense attorneys nearly $1 Million, allegedly pursuant to a litigation strategy documented by its own claims manual to pursue practices which deter the filing of small value claims.  Berg v. Nationwide Mut. Ins. Co., 2012 PA Super. 88, 44 A.3d 1164, 1176-77 (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.   

    Last but hardly least, Bank of America has spent much on the costs of defense in lawsuits challenging its acquisition of Merrill Lynch.  Jessica Silver-Greenberg and Susanne Craig described BOA's costs of defense payments this way, in a post on Dealbook Blog on New York Times Online, on September 28, 2012:  "The bank has spent billions of dollars to defend lawsuits related to Countrywide's mortgage business. In the second quarter of 2011, for example, the bank reported an $8.8 billion loss, mainly related to a settlement with mortgage investors."  {Emphasis added.}  As they say, "That's Billions, with a 'B'."

    The costs of defense may be a theoretical construct more than a term with universally understood meaning.  In other words, you may know or think you know what you mean when you use the term, but it almost certainly will not mean the same thing to someone else.

Please Read The Disclaimer.