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An insurance company providing force-placed insurance argued in a recent case that a complaint against it should be dismissed "in its entirety". The insurer was sued for its part in an alleged scheme to inflate lender force-placed insurance premiums paid by borrowers. The allegedly illegal inflation was caused by kickbacks and the insurance company defended on the ground that the mortgagee-lender disclosed the kickbacks. So, the insurance company filed its motion to dismiss the entire complaint for failure to state any claim upon which relief could be granted.
A U.S. District Judge granted the force-placed insurance company's motion. Focused on what the Judge called "the meat of the allegations," the Court held that the "'substance'" of the "'transaction'" was disclosed, so there is no claim. Further, kickbacks do not cause "'divided loyalties'" and so they cannot be illegal. See Circeo-Loudon v. Green Tree Servicing, LLC, 2014 WL 4219587 (S.D. Fla. August 25, 2014).
Greed is good, said the fictional Gordon Gecko. Kickbacks are good, too, and as a matter of law if this is the law.
Please Read The Disclaimer. Copyright 2014 by Dennis J. Wall. All rights reserved. No claim to original U.S. Government works.
Since this story was first written, a fifth Notre Dame football player has reportedly been held out of football practice and games for alleged cheating and other academic improprieties. See linked reports below.
Contrasting this record to another past administration at Notre Dame, the score now is:
Number of football players held out of football practice and games because of alleged cheating or other academic wrongdoing:
Monk Malloy, President of Notre Dame, and Lou Holtz, Head Football Coach at Notre Dame:
0.
John Jenkins, President of Notre Dame, and Brian Kelly, Head Football Coach:
5*.
*Another player was previously suspended during this regime, so far.
Mr. Kelly apparently designated most of the gang of five heldouts, if you will, to be starters this year.
As these words are written, it is only a few hours before Notre Dame's first football game of the season. Notre Dame fans, and there are many of them including me, are fortunate that this week's opponent is Rice. If Mr. Kelly's chosen athletes do not win games, then perhaps things will change.
Please Read The Disclaimer. Copyright 2014 by Dennis J. Wall. All rights reserved.
Will insurance companies insist on mandatory arbitration of bad faith claims under such provisions?
Actually, the idea that these provisions require "mandatory arbitration" is correct as far as it goes, but that does not fully describe them. Here is a representative provision taken from a filing in a Federal Court case: Download Weller-case-dkt-53.4-d-colo-2013-arbitration-etc.-agreement. The provision necessarily involves more than mandatory arbitration. The provision is also a waiver of jury trial.
It may only be a matter of time before the extent and validity of such mandatory insurance contract provisions are ruled on by Courts in bad faith cases.
That clients receive little or no money and that their lawyers may receive lots of money for settling large cases is not new. These things have become commonplace in other large-case settlements such as settlements in product liability litigation, settlements in insurance bad faith lawsuits, and in settlements in lender force-placed insurance practices cases. Yet it seems that the settlements in these cases are not often reported and, even when they are reported, they are explained even less.
The one additional feature in the current settlement proposal on behalf of the plaintiff shareholders in their very large case against HP, is:
3. That the attorneys now representing the plaintiff shareholders will, by agreement with HP, become HP's attorneys.
"In return" for the settlement agreement in the shareholder litigation, ...
HP will pay the shareholders' lawyers an $18 million retainer and up to a total of $48 million in fees.
What will the shareholders get? They'll get no money. On the contrary, it's their money HP will be spending on the lawyer's fees. They'll get no personnel or board changes. They won't find out who's to blame or what went wrong. What they will get are some corporate governance reforms, which HP needn't disclose in any detail.
On that last point, the secrecy of what the huge corporate defendant agrees to do as a part of the settlement, it is not news either. It is pretty common in large-case settlements to keep a lot of details about the settlement, and about the litigation for that matter, "confidential" by stipulated agreement which is regularly approved by the Courts.
On Monday, August 25, 2014, a Hearing will be held on a motion to intervene for the purpose of objecting to the proposed settlement, the linked newspaper article reports. In most cases, the Courts approve these stipulated settlements without changing them. It is worth following the results of tomorrow's Hearing, but whatever happens is probably not going to be "news".
Are these people so unsure of themselves that they have got to change Notre Dame's integrity so that everyone will know that they are leaving their mark?
Brian Kelly paraded the new look of NotreDame football uniforms. Click the linked newspaper report to see a photograph. High school. There, that's enough said. The time it takes to read the last four sentences is about as much time as Kelly spent at the press conference rolling out these items of apparel.
Mr. Kelly spent more time answering lots of questions about football players who were suspected of cheating in class.
At Notre Dame.
The Reverend Jenkins explained that everybody does it:
Really? Is that the best defense your lawyers could come up with?
Messrs. Jenkins and Kelly, you have already left your mark on Notre Dame. You can quit now. Here is what you have done, compared to a previous pair of people who used to run the place:
Number of football players suspended or "held out of practice and competition, although not suspended"*:
Ted Hesburgh, University President, and Ara Parseghian, Head Football Coach: 0.
John Jenkins, University President, and Brian Kelly, Head Football Coach: 5.
*According to the linked New York Times article, 4 players were not suspended this past week but were instead "held out of practice and competition," and player number 5 was actually suspended last fall for cheating.
As was said of Neville Chamberlain after he presided over his own much greater failure,"For God's sake, GO!"
In the first-party bad faith case of Batchelor v. GEICO Casualty Co., 2014 WL 3906312 (M.D. Fla. June 9, 2014), GEICO contended that it would be deprived of due process if it could not get answers to its damages interrogatories.
The interrogatories certainly appear to be standard, form interrogatories used in U.M. cases. They inquire into the plaintiff's damages sustained in the given accident, what physicians she has seen, what injuries she claims, what effects the accident had on her employment history and capacities, and so on.
The interrogatories were served in a bad faith case.
Ms. Donna Batchelor is GEICO's insured. She was injured in an auto accident. She had U.M. coverage of $30,000.00 under a policy issued by GEICO. After GEICO refused to pay the U.M. coverage, Donna Batchelor sued GEICO and a jury in a Florida State Court determined her damages at $1.8 Million.
The U.M. trial court granted GEICO's motion to reduce the verdict to the U.M. policy limit of $30,000.00. GEICO appealed the result (except, certainly, the trial court's ruling limiting the plaintiff's recoverable damages to the U.M. policy limits). Florida's Fifth District Court of Appeal affirmed.
GEICO served its U.M. interrogatories in the instant first-party bad faith lawsuit. A motion to compel filed on behalf of GEICO presented the argument that GEICO would be denied due process in the bad faith lawsuit if it were not allowed to serve U.M. interrogatories inquiring into the plaintiff's damages from the accident. This argument was based on a State District Court of Appeal Judge's concurring opinion in a case, which was followed by two U.S. District Judges in two later cases.
The due process argument was successful in front of a U.S. Magistrate Judge in the bad faith case, who granted the motion to compel the plaintiff to answer interrogatories about what damages she incurred in the auto accident, until the argument reached a third U.S. District Judge, in the Middle District of Florida.
As the District Judge pointed out, the due process argument which originated in a State DCA Judge's concurring opinion and "which is wholly unsupported by authority--is contrary to Florida law and, indeed, to the ... majority opinion itself."
GEICO's position might have been made stronger if the interrogatories in question were written to ask what damages Ms. Batchelor claimed in this bad faith lawsuit. Instead, the interrogatories are a form used in U.M. cases directed to the issue of damages sustained in the underlying automobile accident. So, GEICO's position here was that due process would be denied if a U.M. carrier could not send out another set of U.M. interrogatories to ask about damages already fixed by a verdict, reduced in a judgment to U.M. policy limits by motion, and affirmed on appeal to a State District Court of Appeal.
The District Court rejected the due process argument on these facts:
This Court cannot discern any due process violation from this procedural posture. Defendant fully litigated the issue of the extent of Plaintiff's damages, argued that issue on appeal, and obtained a ruling from the appellate court. It has received all of the process to which it is due.
Batchelor v. GEICO Casualty Co., 2014 WL 3906312 *3 (M.D. Fla. June 9, 2014).
GEICO's position may yet prevail. One of the U.S. District Court cases mentioned as accepting this argument on certain facts, is the subject of a pending appeal in the U.S. Eleventh Circuit Court of Appeals. The Batchelor opinion may be one District Judge's comment on that pending issue.
GEICO also argued that the underlying jury verdict was not a determination of bad faith damages. This contention appears to be contrary to the language of Florida's "Bad Faith Statute," Fla. Stat. § 624.155(8), which provides that "[t]he damages recoverable pursuant to this section ... may include an award or judgment in an amount that exceeds the policy limits." The District Judge in this case disposed of this argument as follows:
Defendant's position would improperly read the words "award or" out of the statute. If the legislature intended only for the amount of a judgment to establish the damages, those words would be superfluous.
Batchelor v. GEICO Casualty Co., 2014 WL 3906312 *4 (M.D. Fla. June 9, 2014). [Emphasis by the Court.]
I was going to include the interrogatories for you to see, so I copied them from the motion to compel from the electronic court file on PACER. They are not quoted in the Court's opinion, although the Court's decision in Batchelor becomes clearer on reading the defendant's interrogatories and the plaintiff's answers and objections. When I copied them from the Court File, however, the copy came with a formatting command embedded in the motion to number the paragraphs, so the formatting started over again at paragraph number 1 instead of beginning with paragraph number 5 and ending with paragraph number 15. Renumbering some eleven paragraphs is more work than I anticipated, and so I intend to post the interrogatories separately later.
Mandatory arbitration provisions are becoming commonplace. They are particularly favored by a current majority of the U.S. Supreme Court, which helps to explain their popularity. Mandatory arbitration clauses cannot always be used to compel arbitration, however.
In the case of Griswold v. Coventry First LLC, 2014 WL 3892995, 2014 U.S. App. LEXIS 15362 (3d Cir. August 11, 2014), the mandatory arbitration provision was typical. It was very broad: The arbitration clause encompassed “[a]ll disputes and controversies of every kind and nature between the Parties arising out of or in connection with this Agreement.” [Emphasis added.] The Third Circuit panel in this case described this provision accordingly: "By all accounts, the language in the arbitration provision is fairly standard and interpreted to apply broadly."
The decisions in this case by the U.S. District Court and by the Third Circuit have been concisely summarized in words that cannot be surpassed in their brevity: The Third Circuit "affirmed a federal judge in Pennsylvania's ruling denying a motion to compel arbitration ... because the allegations in his complaint stem from conduct that occurrred separate from the agreement," said Mealey's Insurance in their post on August 12, 2014.
The plaintiffs did not sign the contract that contained the mandatory arbitration provision. They alleged that in a separate agreement with someone else, but not them, the defendant, which the Third Circuit panel described as "a Pennsylvania-based insurer and significant player in the life settlement industry," engaged in conduct giving rise to their alleged claims of "common law fraud, fraudulent concealment, conversion, aiding and abetting the breach of fiduciary duties, unjust enrichment, and also violated state life settlement acts, the Sherman Act, and the Racketeer Influenced and Corrupt Organizations Act (RICO)."
The Third Circuit panel affirmed the District Judge's ruling denying the defendant's motion to compel arbitration because the non-signatories to the contract containing the provision did not base their claims on that contract, but on matters arising outside of and apart from that contract:
Here, what “saves the day” for Griswold is the fact that the alleged [separate] “Secret McGarrey Agreement” took place prior to and apart from the execution of the purchase agreement. Of course, that alleged fraud was related to the purchase agreement—it set the purchase price and, allegedly, the inflated, undisclosed broker's commission. But that alone is not sufficient to compel arbitration under the equitable estoppel doctrine: the claims must be based directlyon the agreement. [Citation omitted.] Here, Appellees' Amended Complaint sufficiently alleged their injury without mention of the purchase agreement. Put simply, Appellees do not allege breach of the purchase agreement; they allege fraud antecedent to the purchase agreement.
The Federal Courts' rulings in this life insurance case are broad enough to extend to all insurance contracts -- and to most if not all other forms of contracts too.
Please Read The Disclaimer. Copyright 2014 by Dennis J. Wall. All rights reserved. No claim to Original U.S. Government Works.
Consumer concerns about fraud in the overall area of Credit and Debt including Mortgage servicing practices, also ranked 3d on the Top 10 list in 2012. Bad Faith claims alleged on account of lender force-placed insurance practices are detailed in 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 9:35, Force-Placed Insurance: The most frequently alleged claims and causes of action, including alleged Bad Faith (West Publishing Co. 3d Ed. and 2014 Supp.). The examination of Bad Faith claims follows after, first, a look at the background of lender force-placed insurance, see id. § 9:33, and, second, a look at the substantive issues of lender force-placed insurance and success or failure in stating claims. See id. § 9:34.
After suffering the effects of the Great Recession -- which, contrary to some people's wishful thinking is still with us -- the purveyors of financial doom are at it again. Actually, they probably never really stopped. "Federal prosecutors have begun a civil investigation into the booming business of subprimeautolending, focusing on the packagain and selling of questionable loans to investors. The inquiry is being undertaken amid worries among some regulators that checks and standards are being neglected as the subprime auto loan market surges, in a small, yet disturbing, echo of the subprime mortgage crisis."Michael Corkery and Jessica Silver-Greenberg, "U.S. Starts Civil Inquiry of Subprime Car Lending," p. B1, col. 5 (New York Times Nat'l ed., "Business Day" Section, Tuesday, August 5, 2014), renamed on New York Times Dealbook online. [Emphasis added.]
Are we going here again?
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The National Association of Insurance Commissioners seems to have misplaced two States. The NAIC counts seven (7) jurisdictions including three (3) States among those jurisdictions which supposedly have not enacted the NAIC's Model Unfair Claims Settlement Practices Act.
Two of the States on the NAIC's 'non-adopters' list actually adopted the Unfair Claims Settlement Practices Act, though: Iowa (over 30 years ago) and Nevada. The one State on the NAIC list which is listed accurately as a 'non-adopter' is Mississippi.
The NAIC Unfair Claims Settlement Practices Acts originally proposed beginning in 1972 are totally addressed in 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH Section 3:28 (West Publishing Co. 3d Edition and 2014 Supplement); 2 id. Section 9:14.
Please Read The Disclaimer. Copyright 2014 by Dennis J. Wall. All rights reserved. No claim to original U.S. Government works.
