Claims and Bad Faith Law Blog

EUO REFUSAL IS A FAILURE TO COOPERATE AND VOIDS COVERAGE ....

Federal Court’s holding under New York law.

                When the policyholder refused to submit to an examination under oath during the investigation of its fire loss claim, that act of refusal barred recovery on the insurance policy under New York law in the case of The Wingates, LLC v. Commonwealth Ins. Co. of Am., 21 F. Supp. 3d 206, 220 (E.D.N.Y. 2014):

   In sum, the Court finds that the Plaintiffs' willful violation of the Examination Under Oath clause in the Policy precludes recovery as a matter of law. Therefore, that portion of the Commonwealth's motion seeking summary judgment on that ground that the Plaintiffs failed to cooperate is granted, and the complaint is dismissed.

                The Federal Court set out the steps to ponder in useful detail whenever parties and their lawyers are confronted with requests or refusals for an Examination Under Oath in a first-party case, particularly when New York law applies, as it did here:  The Wingates, LLC v. Commonwealth Ins. Co. of Am., 21 F. Supp. 3d 206, 217-20 (E.D.N.Y. 2014).  A notice of appeal was docketed by the Clerk of the Second Circuit Court of Appeals on June 18, 2014; oral argument has tentatively been set by the Second Circuit for May, 2015.

                Both the insurance carrier and the Court treated a refusal to provide an EUO the same as a breach of cooperation under the policy at issue, on the other hand.  Both used those terms interchangeably, namely, a failure to provide an EUO was equated with a failure to cooperate, and breach of an EUO clause was equated with breach of a cooperation clause.

               Commonwealth and the Court quoted from the policy’s EUO provisions, as you would expect.  But neither of them ever quoted from a cooperation clause, probably because this policy, like most first-party policies, presumably did not have a cooperation clause.  In this case, Commonwealth prevailed because the Court ruled that its policy’s EUO clause was breached; everything else about that is dicta.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.  No Claim to Original U.S. Government Works.

No "Lender Force-Placed Insurance Practices" Case Has Gone to Trial.

    

American Bar Association publishes book presenting the evidence never before available except to the lawyers and their clients in cases that never went to trial.

"Lender Force-Placed Insurance Practices" tells the story of a real-life drama, the drama of how American homeownership became a business opportunity for everyone but homeowners.  Lender force-placed insurance is not just for homes, however; it is a part of virtually every loan in the country.

We just may not be aware of it.

Lenders place insurance by force when a loan's collateral is in danger. Borrowers agree to provide collateral to guarantee that they will repay the loan. If the loan is for an automobile, then the automobile is the collateral; if the loan is a mortgage on a home, then the home is the collateral.  In case of damage to the collateral, as a part of the loan the borrower pays for insurance to protect the collateral.

If the borrower does not pay the collateral protection insurance premiums, then as a part of the loan agreement the lender can place insurance by force to protect the collateral and the borrower will pay the premiums for the insurance force-placed by a lender. Those premiums are added to the monthly loan repayment. Borrowers agree that if they do not make the monthly payment, their lenders can foreclose on their homes or repossess their automobiles.

This is where the previously unpublicized, often unseen “lender force-placed insurance practices” come into play.  These practices involve hidden charges like commissions paid to affiliates of the lender which are insurance agents in name only, or reinsurance premiums paid to subsidiaries of the lender.  The insurance company providing the force-placed insurance pays these charges in order to get the business of force-placed insurance.  The charges are silently added to the borrower’s monthly payment.

The facts presented here were learned in a forensic investigation into publicly available information over the course of 3 years. What I mean by “forensic investigation” refers to my examination of the evidence of LFPI practices, which I largely found in Court files.  I concentrated on what the parties testified and what the documents displayed.  I did not put much emphasis on what the attorneys argued in those cases.

My default rule was to rely on the testimony and documents that came from the most knowledgeable source on any given issue. Whenever the issue involved identifying and describing LFPI practices, and the evidence was available, those sources were the testimony and documents provided by the lenders and their affiliates and subsidiaries, by their mortgage servicers, and by the insurance companies which offer the force-placed insurance policies.

No case involving “Lender Force-Placed Insurance Practices” has ever gone to trial.  The evidence is on display in this book and in the Court files of the cases which all came to an end without a trial.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.

STROLLY POLICIES BAFFLE COURTS WITH QUESTIONS.

               Stranger-oriented life insurance policies, or “STOLI” (shouldn’t that be STROLI? pron. STROLLY) policies, are an investment scheme.  In a recent case, for example, questions were presented regarding these types of policies “that the issuing insurance company sought to have invalidated several years after their issuance.”  The insurance company’s argument was apparently exclusive, in that it was based in that case on the contention that the person buying the life insurance policy (in this case as in most, a giant corporation) did not have an insurable interest from inception in the life of the person insured by the life insurance policy.  As in most cases, the insurance company’s contention in that case is codified in a State statute.

               The procuring corporation argued gamely that the life insurance company had waited too long to contest the procuring corporation’s lack of insurable interest, so that the insurance company, it argued, was estopped by another State statute.

               The arguments played out in the case of Pruco Life Ins. Co. v. Wells Fargo Bank, N.A., 780 F.3d 1327 (11th Cir. 2015), in which the Federal Appeals Court panel certified the following question to the Supreme Court of Florida for a response:

    Thus, the question before this Court is which statute controls. Stated another way, when these two statutes collide, does Florida's interest in prohibiting the issuance of insurance policies purchased by an individual with no insurable interest [Fla. Stat. § 627.404] trump its interest in requiring insurance companies to determine, within a designated period of time, whether a particular policy is subject to that or any other challenge [Fla. Stat. § 627.455]?

Pruco Life Ins. Co. v. Wells Fargo Bank, N.A., 780 F.3d 1327, 1329 (11th Cir. 2015).

               So, there is no question but that the bank in this case had absolutely no insurable interest in the lives of the people on whose lives the bank placed insurance.  Rather, the overall question was whether, having no insurable interest, the bank can claim the benefit of a statute which makes its interest basically incontestable, or so the bank argues in this case.

               There is one further question which concerns one Berger.  “That question is whether § 627.404, the insurable interest statute, is violated when the individual who procures the insurance has the required insurable interest at the time of issuance, but nonetheless has procured the policy in bad faith.”  Pruco Life Ins. Co. v. Wells Fargo Bank, N.A., 780 F.3d 1327, 1329 n.3 (11th Cir. 2015).  [Emphasis added.]

          It is a puzzle why anyone would carve out this question of bad faith procurement from all stranger-originated life insurance policies and ask it about only one.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.  No Claim to Original U.S. Government Works.

 

“CLASS ACTION SETTLEMENTS HAVE CONSEQUENCES, FROM FLORIDA TO WASHINGTON STATE”

          An affirmative defense of res judicata is emerging based on class action settlements in recent cases.  I explored the issue in the context of a lender force-placed insurance case in the Southern District of Florida and the effect of a class action settlement in that case on other LFPI cases around the nation, in an article published in NWLawyer, the journal of the Washington State Bar Association:  “Class Action Settlements Have Consequences, From Florida to the State of Washington,” 69 NWLawyer 27 (April/May 2015).

          Here is how the topic is introduced in the article:

           Most people agree to pay for force-placed insurance.  They just may not realize it.

When we borrow money, we almost always give our lenders collateral to back the loan.  We also agree that we will buy insurance to protect the collateral if the collateral is particularly big, such as our house in a mortgage loan.   In the event that we do not make the loan payments, or if we do not keep insurance in place to protect the collateral, we also agree that our lenders can place insurance to protect the collateral and force us, the borrowers, to pay for it.

But we generally do not agree to pay the additional price of kickbacks and other secret charges which insurance companies allegedly pay to banks in exchange for a place on the lenders’ approved list of insurance companies offering force-placed insurance.

  

Here is the rest of the article.

 

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.

Related articles

Claim Preclusion Opportunity to Be Heard on June 11, 2015.

COMPELLING TESTIMONY FROM CORPORATE POLICYHOLDERS WHICH SUE FOR DEFENSE EXPENSES.

               Maronda Homes, Inc. of Florida is a homebuilder with thirty subsidiaries operating in five States.  Maronda obtained a commercial automobile insurance policy from Progressive Express Insurance Co.  There came a time when Maronda “and three other defendants” were sued for negligence by a person or persons injured in an automobile accident.

               It is unclear who the “three other defendants” were, but apparently Progressive provided all four (4) with a defense in the underlying case.  Maronda objected and Progressive hired a separate defense lawyer for Maronda.

               After the new lawyer advised Maronda that “’he would be reluctant to take positions in litigation that were adverse to Progressive because he did not want to jeopardize his business relationship with Progressive,’” Maronda declined the defense proffered by Progressive on the ground that the defense was “’legally insufficient.’”  Maronda then hired its own defense attorney to defend it in the underlying case.

               Maronda filed an action for declaratory relief, urging that as a result of these developments, Progressive had breached the liability insurance policy which Progressive issued to Maronda.  Maronda also requested that Progressive pay “damages consisting of the attorney’s fees and costs” which Maronda paid its personal defense counsel in the underlying case.  Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *1 (M.D. Fla. April 8, 2015)(Thomas B. Smith, USMJ).  It is not known whether the underlying case had concluded, although that result would not have affected the decision at bar.

               Progressive filed a motion to compel the deposition of one Gagat, Moranda’s and its subsidiaries’ vice president and controller.  Progressive sought “to depose Gagat concerning the allegedly inadequate defense it provided Maronda in the accident case”.    Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *4 (M.D. Fla. April 8, 2015).  After reviewing Florida law which is settled on the question, namely, that acting negligently in providing a defense is a breach of the insurance contract, and in this case although the Court did not say so it certainly appears to have been a question of law whether or not there was a breach, the Court stated aloud that “the Court does not know what Progressive hopes to accomplish by asking Gagat for his opinion of the adequacy of the defense it provided Maronda”.

               More specifically, Progressive wanted to know about “the ‘existence or non existence [sic] of communications that took place about the defense and claims for which Maronda Homes is now critical of Progressive.’”  The Court’s response to this reason was short and to the point:  “The Court will not speculate about what this is supposed to mean.”   Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *4 n.1 (M.D. Fla. April 8, 2015).

               Whatever Progressive hoped to accomplish by taking Mr. Gagat’s deposition may be unknown, “but that is not a reason to preclude Progressive from taking the deposition.”  The Court granted Progressive’s motion to compel Mr. Gagat’s deposition.  “Progressive may depose Gagat.”  Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *4 (M.D. Fla. April 8, 2015).

               Maronda opposed Progressive’s motion on several grounds, one of which was that in setting Mr. Gagat for deposition, Progressive was actually trying to set an impermissible “apex deposition”.  The Court in this case helpfully explained, for the benefit of those who, like me, had not heard the term before, that an apex deposition means “the deposition of a high ranking executive or principal in an organization.”   Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *2 (M.D. Fla. April 8, 2015).  The Court further explained how to support an “apex deposition” objection or, perhaps more accurately, how not to support it, because Maronda did not establish where Mr. Gagat fit within the corporation’s hierarchy, “and without this information, it is impossible to say whether Gagat is sufficiently senior in the company to be considered an apex witness.”  Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *3 (M.D. Fla. April 8, 2015).  It should be noted that not every “apex deposition” would be impermissible in all cases, because as the Court in this case pointed out, even if Maronda had established that Mr. Gagat was “apex,” under the circumstances of this peculiar case Mr. Gagat’s deposition would still be allowed.    Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *3 (M.D. Fla. April 8, 2015).

               There you have it.  A deposition of an officer of a large corporate policyholder suing for defense expenses was allowed to proceed even though it was at best unclear what if anything the officer could possibly say about “the adequacy of the defense” it was provided by its liability insurance carrier.  And an “apex deposition” objection is not enough, by itself, to stop a deposition from happening.  So says the Court in this Federal case in Florida.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.  No Claim to Original U.S. Government Works.      

LENDER FORCE-PLACED INSURANCE PRACTICES HELD PART OF FORECLOSURE DEFENSE.

    Lender force-placed insurance practices apparently became a defense to foreclosure in the case of Bank of Am., N.A. v. Pate, ___ So. 3d ___, 2015 WL 1135923 (Fla. 1st DCA March 16, 2015)(Thomas, J., Specially Concurring provided all the facts in this Per Curiam decision).

    The Pate case was a civil foreclosure involving a “residential home.”  The Trial Court found that the bank acted with “unclean hands in this equity action”.

    The bank’s hands were found to be unclean partly on account of the bank’s alleged (and apparently proven) failure to pay the homeowners’ insurance fees from escrow, following which the bank force-placed insurance and thereby “quadrupled” the homeowners’ monthly mortgage payment.

    In addition to losing its foreclosure action, the bank in this case was also a counterdefendant against counterclaims filed by the homeowners “for breach of contract and fraud” which resulted in the assessment of $250,000.00 in punitive damages together with an award of $60,433.29 in compensatory damages.

We owe a debt of gratitude to Judge Thomas for making the facts public knowledge in his Specially Concurring opinion in this Per Curiam case.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.  No Claim to Original Florida Government Works.

WEBINAR ON "LENDER FORCE-PLACED INSURANCE PRACTICES" TOMORROW: SCHOLARSHIPS AVAILABLE.

    This is a reminder that West Legal Education Center has agreed to make scholarships available for some of those who wish to attend tomorrow's Webinar on "Lender Force-Placed Insurance Practices."

    The Webinar begins at Noon ET and is scheduled for one hour.

    If you are interested in attending via a scholarship, contact andre.chouravong@thomsonreuters.com. 

Please Read The Disclaimer.  Copyright 2015 by Dennis J. Wall.  All Rights Reserved.

BOOKS FOR BOOK REVIEWS!

          I will send a complimentary copy of my “Lender Force-Placed Insurance Practices” book to:

1. The first three people who EMail me at DJW@lenderforceplacedinsurance.com, whose mailing address and other contact information I can confirm;
2. Put in the subject line:  Request Complimentary LFPI Book for a Book Review/IBF; and
3. Agree that within 2 weeks of receiving their complimentary copy, they will write and send a book review of it to Insurance Litigation Reporter (I will provide the address of ILR at the time that I send an EM notifying the lucky addressees of their good fortune to receive a complimentary copy of my book).  The book review must comply with the guidelines of Insurance Litigation Reporter for publishability.  No promises that Insurance Litigation Reporter will publish all or any given book reviews.

That’s it!  It’s as easy as 1-2-3.  

Good luck!

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.

 

Related articles

Books for Book Reviews: "Lender Force-placed Insurance Practices".

EVENTS ON APRIL 6, 7 & 8, 2015 CHANNELING "LENDER FORCE-PLACED INSURANCE PRACTICES".

                Further news is coming on Monday and Tuesday, April 6 and 7, 2015 containing information about how to obtain complimentary copies of “Lender Force-Placed Insurance,” my book which is being published by the American Bar Association.   The update will be published on Insurance Claims and Issues Blog and on Insurance Claims and Bad Faith Law Blog, respectively.  Receiving a complimentary copy of my book from me will be as easy as 1-2-3!  Watch this space.

               On Wednesday, August 8, 2015, I will present a one-hour Webinar on “Lender Force-Placed Insurance Practices” on West Legal Education Center (“WLEC”).  Look forward to “seeing” you there!  I asked WLEC to provide a scholarship or two for people interested in attending.  I am happy to say that WLEC agreed! 

THIS IS NOT AN APRIL FOOL'S JOKE!  I have been authorized by West Legal Education Center (WLEC) to advise you of WLEC'S offer of 1 or 2 scholarships to people who want to attend the WEBINAR ON "LENDER FORCE-PLACED INSURANCE PRACTICES" ONE WEEK FROM TODAY, ON APRIL 8, 2015.  Here is your contact for details:  andre.chouravong@thomsonreuters.com.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.

Related articles

Books for Book Reviews: "Lender Force-placed Insurance Practices".

SHAME ON YOU WOMEN’S COLLEGE BASKETBALL: APRIL MADNESS ON EASTER?

               The basketball Jones of April madness seems to be overwhelming to some people.  Colleges – but not players --have received money for making contracts to provide basketball players.  The April madness will continue in Women’s College Basketball on Easter Sunday.

    Men’s College Basketball has not scheduled any games on Easter Sunday.  The colleges – but not players – agreed to provide basketball players to fill the open TV schedule on Easter Sunday.  They agreed to provide Women’s College Basketball on Easter Sunday.

    That would have been enough.  But the money did not stop there.  Notre Dame – but not players -- agreed to provide its Women’s College Basketball team to play a game on TV on Easter Sunday.

Notre Dame?

    No, not that Notre Dame, the school founded by priests and where religion is, well, a religion.  NO, this Notre Dame, the school founded on money and where religion is, well, love of money.

               Shame on you Women’s College Basketball.  And shame on you Notre Dame for changing your religion.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.