Claims and Bad Faith Law Blog

Ask FOR AN IN CAMERA REVIEW AND YOU MAY OVERCOME.

Valuable lessons for all practitioners and their clients, including but not only in bad faith cases, are taught by the practice displayed in the bad-faith-in-settlement and vexatious-refusal-to-pay case of Electric Power Sys's Int'l, Inc. v. Zurich Am. Ins. Co., No. 4:15 CV 1171 CDP, 2016 WL 3997069 (E.D. Mo. July 26, 2016).

In that case a liability carrier claimed attorney-client privilege and work product on many documents in its claim file as its reasons for redacting certain documents and refusing to produce other documents during discovery.  The opposing party requested an in camera inspection of the documents.  The Court ordered many produced -- unredacted -- as a result of seeing them for herself.

No less than three lessons are clearly presented by this ruling:

First, if you want a judge to inspect disputed documents in chambers, ask for the inspection.

Second, a document, like a picture, is worth a thousand words as the saying goes.  Many documents that were once withheld from discovery see the light of day after a judge takes a look at them.

Finally, a practical lesson, not necessarily present in this case but quietly present in many cases:  A party which raises losing objections in case after case but continues to withhold documents -- and have its objections overruled yet again -- will build up a very poor track record and their reputations will precede them.

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NOT A Powell CASE, AFTER ALL. PLUS APPARENT OVERREACH …

UNDER LAW AND FACTS ON REQUESTED JURY INSTRUCTION.

In this final iteration of Stalley v. Allstate Ins. Co., No: 6:14-cv-1074-Orl-28DAB, 2016 WL 3282371 (M.D. Fla. June 10, 2016), appeal docketed, No. 16-14816 (11th Cir. July 11, 2016), Stalley was apparently not a Powell case after all, and a crucial plaintiff's requested jury instruction was apparently supported neither by the law nor the evidence in the record at the conclusion of the case:

IV.  Conclusion

The authorities cited by Plaintiff do not establish the existence of a “presumption” under Florida law in a jury trial setting regarding the possible outcome of settlement efforts. This Court does not read Powell as creating any such presumption; instead, as noted earlier, this Court construes the statement in Powell that “[a]ny question about the possible outcome of a settlement effort should be resolved in favor of the insured” as an accurate, well-established statement of the movant's burden on a motion for directed verdict—the context in which that statement was made. Plaintiff has identified no Florida state court decision discussing or approving a jury instruction informing the jury that it should resolve “any question about the possible outcome of a settlement effort” in favor of the insured. No binding Eleventh Circuit precedent to this effect has been brought to the Court's attention either. Furthermore, Plaintiff's proposal of language requiring “conclusive proof” by an insurance company to overcome the supposed “Powell presumption” is wholly lacking in support. Thus, this Court concludes that the portion of Plaintiff's proposed Special Instruction 3 quoted earlier in this order is not an accurate statement of Florida law in the context of jury instructions, and accordingly this Court concluded that it was not appropriate to include that proposed language in the jury instructions in this case.

Stalley v. Allstate Ins. Co., No: 6:14-cv-1074-Orl-28DAB, 2016 WL 3282371, at *6  (M.D. Fla. June 10, 2016), appeal docketed, No. 16-14816 (11th Cir. July 11, 2016).

In an earlier appearance of Stalley, on an earlier record, the same District Judge ruled that the record at that time potentially supported Powell and accordingly denied Allstate's motion for summary judgment at that time.  The Court's stated rationale included the Powell rule.  See Stalley v. Allstate Ins. Co., No. 6:14-cv-1074-Orl-28DAB, 2016 WL 1752764, at *8 (M.D. Fla. April 29, 2016), quoting Powell v. Prudential Property & Casualty Insurance Co., 584 So. 2d 12, 14 (Fla. 3d DCA 1991), review  denied, 598 So. 2d 77 (Fla. 1992).

The Powell rule of initiating settlement negotiations when the likely damages in the underlying case are greater than available policy limits ("when damages are great") and when the insured's underlying liability is probable ("when liability is probable"), is not a hard-and-fast legally constructed duty despite being called a "rule."  Instead, it varies with the facts, as the rulings in Stalley so clearly display.

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AARP AND UNITED HEALTH CARE, and "THE FILED RATE DOCTRINE."

FEDERAL JUDGE IN TEXAS DISMISSES TEXAS DECEPTIVE PRACTICES AND UNFAIR INSURANCE CLAIMS BECAUSE OF "THE FILED RATE DOCTRINE."

In Peacock v. AARP, Inc., No. 3:13-cv-00459, 2016 WL 3792711, at *1 (S.D. Tex. Feb. 12, 2016), the plaintiffs sued AARP and United Health Care in a putative class action of AARP members.  The Federal Court never got to the merits.

The plaintiffs alleged that their class consisted of persons who purchased group insurance plans offered in Texas by United Health Care in the name of the AARP.  Further, the plaintiffs specifically alleged that they represented a "class of senior citizens and disabled individuals in the State of Texas who were 'forced into paying an illegal allowance fee for services relating to group Medicare supplemental health insurance.'”  (Although the Federal Court did not make much of it, members of the AARP pretty much know that AARP receives part of the cost of obtaining a group health plan through AARP.  Most AARP members are okay with that, but the point is that most AARP members know that.  This goes to the "plausibility" of the claims in the plaintiffs' complaints in Federal Court but, again, the Federal Judge in this case did not make much of anything out of it.) 

After their original complaint was dismissed under Federal Rule 12(b)(6), the plaintiffs filed an amended complaint that was 58 pages long with 370 exhibits.  The Federal District Judge was still not convinced.  In the decision discussed here, the Federal Judge granted a motion to dismiss the first amended complaint, too.

The plaintiffs' complaints were based on a pre-existing business relationship between AARP and United Health Care.  The plaintiffs alleged that the defendants jointly came up with a group health insurance plan that:

(1) illegally charges an improper monthly fee to its group plan members [i.e., the plaintiffs and others similarly situated], and (2) fails to truthfully disclose this fee to governmental authorities and members of the insurance plan. Accordingly, Plaintiffs allege that Defendants have violated several provisions of the Texas Insurance Code [for a shorthand reference, the Court often called these 'the Chapter 541 claims'] as well as the Texas Deceptive Trade Practices Consumer Protection Act ('DTPA').

Peacock v. AARP, Inc., No. 3:13-cv-00459, 2016 WL 3792711, at *1 (S.D. Tex. Feb. 12, 2016).

The defendants argued for dismissal of these claims for many reasons, one of which was "the filed rate doctrine."  As the Court succinctly summarized that 'doctrine':  "The filed-rate doctrine applies when state law creates a state agency and a statutory scheme under which the agency determines reasonable rates for the service provided."   Peacock v. AARP, Inc., No. 3:13-cv-00459, 2016 WL 3792711, at *6 (S.D. Tex. Feb. 12, 2016).  In the eyes of this Judge, this concise definition fit the claims and barred them from being made on the basis of the defendants' alleged "improper monthly fee" and the defendants' alleged failure to disclose it: 

Accordingly, the Court finds that the filed rate doctrine bars Plaintiffs' claims under Chapter 541 and the DTPA because these claims are pled to attack the legality vel non of the rates charged by Defendants for group insurance, and the Court therefore GRANTS the Defendants' motion to dismiss on these grounds.

The dismissal was with prejudice.  Peacock v. AARP, Inc., No. 3:13-cv-00459, 2016 WL 3792711, at *8 (S.D. Tex. Feb. 12, 2016) (emphasis by the Court).

However, objectively speaking the plaintiffs in this Texas case did not appear to challenge the legality of the rates charged by AARP or by United Health Care for group insurance.  They instead challenged the monthly improper fee.  They did not allege, apparently, that the entire monthly health insurance premium was illegal, only that a portion collected by AARP if you will, was "illegal" under the cited Texas statutes.

Further, neither the defendants nor the District Court in this case examined any of the defendants' premium rate filings (which would presumably have been rate requests filed by the regulated health insurance company, United Health Care).  This is not how the filed rate doctrine works.  Application of the doctrine on a Rule 12(b)(6) motion to dismiss which is what was before the Court in this Texas case -- if it applies to such a motion to dismiss at all-- requires at least a declaration of testimony and evidence that the allegedly illegal charge was included in a rate filing that was approved by an appropriate administrative agency.  See generally "Force-Placed Insurance / Filed Rate Doctrine Imported From Utilities Regulation to Insurance Law," 37 Insurance Litigation Reporter 435 (October 6, 2015 issue), available at www.lenderforceplacedinsurance.com on the author's "Works" page.

 
Finally, it does not appear that either the defendants or the District Judge identified which administrative agency they viewed as the agency with authority to approve United Health Care's group insurance rates.  A small oversight, perhaps, but in this case a revealing one.

In short, the defendants said that the filed rate doctrine applied to bar the plaintiffs' claims in this case.  That is all.  The defendants said that.  And that was enough for the District Court to dismiss the claims in this case.

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

NO POLICY LIMITS ON LIABILITY INSURER'S EXPOSURE FOR WRONGFULLY DENYING DEFENSE.

The opinion in Andrew v. Century Sur. Co., 134 F. Supp. 3d 1249 (D. Nev. 2015) is long.  That is probably because it is largely a reconsideration of an earlier ruling.

The Federal District Judge reconsidered the consequences to a liability carrier of wrongfully denying its insured a defense.

Even where there is no sordid or other "bad faith" conduct, the Court concluded that the liability carrier's exposure for wrongfully denying a defense is governed by an old rule:  Breach of a contractual duty can give rise to consequential damages.

As the Court put it in this case:

    In Nevada, the amount expected to be paid under a contract is not the only measure of damages for a breach. Nevada also allows recovery of consequential losses. Thus, if the default judgment was a reasonably foreseeable consequence of Century's breach, then Century is liable for the entire amount of the default judgment as consequential damages resulting from the breach of its duty to defend, regardless of the policy limits.

Andrew v. Century Sur. Co., 134 F. Supp. 3d 1249, 1257-58 (D. Nev. 2015).

Or, as the Court succinctly summarized its new holding, giving voice to the majority view on this issue as it did so:  "There is no special rule for insurers that caps their liability at the policy limits for a breach of the duty to defend."  Andrew v. Century Sur. Co., 134 F. Supp. 3d 1249, 1259 (D. Nev. 2015).

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

TOO SCARED TO TRY: FEDS BEG WALL STREET TO SETTLE …

…All the Big Cases.

This article is being posted simultaneously on Insurance Claims Bad Faith Law Blog and on Insurance Claims and Issues Blog.

HSBC was accused by the Federal Government of what amounts to laundering money for terrorists.  The Feds settled the HSBC matter although they had good chances of success if they went to trial against HSBC and especially against many of its officers and employees.  What trial lawyer would not want to have the prosecution side of a case against terrorists and their sympathizers?  Apparently the Feds.  See Gretchen Morgenson in her "Fair Game" column published in this morning's Sunday New York Times, "A Bank Too Big to Jail" (posted Online on July 15, 2016), which you can also post in your browser at http://www.nytimes.com/2016/07/17/business/a-bank-too-big-to-jail.html?ref=business&_r=0.  Ms. Morgenson's column features an unofficial report released by Republican staffers of the U.S. House Financial Services Committee without the Committee's approval.  Although obviously partisan, it appears that this investigative report offers a lot of actual evidence and not just opinions.

For example, after the Feds decided not to take the HSBC case to trial, they wanted so much to settle with HSBC that they offered immunity from prosecution to HSBC's officers and employees if only HSBC would settle.  The HSBC settlement apparently offers a lesson in settling on unfavorable terms.  Anyone who has ever settled a case knows that once the other side of a negotiation knows that your side wants to settle badly, that is exactly how your side will almost certainly end up settling, which is badly.

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

PENNSYLVANIA BAD FAITH LAW BARS CLAIM, FEDERAL PROCEDURE ALLOWS CONTRACT.

In Davis v. Wells Fargo, No. 15-2658, 2016 WL 3033938, at *2 (3d Cir. May 27, 2016), the Third Circuit Court of Appeals dealt with claims alleged under Pennsylvania law against "Assurant." The complaint contained allegations that Assurant was a force-placed property insurance carrier. In fact, the complaint contained allegations that Assurant "paid Wells Fargo kickbacks in exchange for the bank making Assurant the exclusive provider of force-placed insurance for bank-related properties" like Mr. Davis's.
One of the claims Mr. Davis alleged against Assurant was that it breached a contract which it had with him. Assurant's contract-breaching conduct was that it allegedly failed "to 'adequately investigate and pay the roof leak claim … which led to and caused the back wall of [Davis's] property to deteriorate and collapse.'" Davis attached the insurance company's letter disclaiming coverage to his complaint. The letterhead contained the names of both American Security Insurance Company ("ASIC") and also Assurant's name. "Thus, Assurant's name appeared, in bolded font, at the top of the letter denying Davis's insurance claim." Davis v. Wells Fargo, No. 15-2658, 2016 WL 3033938, at *12 (3d Cir. May 27, 2016).
As a result, said the Third Circuit, Mr. Davis's breach of contract allegations stated a plausible claim upon which relief could be granted under Pennsylvania substantive law. However, Mr. Davis's alleged bad faith claim failed under Pennsylvania law for the same reason. "Because Davis cannot maintain an independent cause of action for breach of the covenant of good faith and fair dealing under Pennsylvania law, that claim should be dismissed …." Davis v. Wells Fargo, No. 15-2658, 2016 WL 3033938, at *13 (3d Cir. May 27, 2016).
Assurant filed a declaration containing testimony that ASIC, and not it, Assurant, was really the force-placed property insurance carrier in this matter. However, Assurant filed a Rule 12(b)(6) motion to dismiss for failure to state a claim which meant, as a matter of Federal Procedure, that the Federal Courts could not properly consider the declaration which contradicted the plaintiff's allegations -- and to say again, as the appellate court did, there was the matter of that disclaimer letter sent to Davis and attached to the complaint with Assurant on the letterhead denying coverage. Davis v. Wells Fargo, No. 15-2658, 2016 WL 3033938, at *12 (3d Cir. May 27, 2016).
Obviously the breach of contract claim would have withstood a motion to dismiss in this case if ASIC or whoever was the actual force-placed property insurer had filed the motion. The actual policy does not appear to have been made a part of the public record in this appeal.
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RULES FOR IMPLYING STATUTORY BAD FAITH CLAIMS.

In Workland & Witherspoon, PLLC v. Evanston Ins. Co., 141 F. Supp. 3d 1148 (E.D. Wash. 2015), an insured law firm and one of its attorneys-employees sued their malpractice carrier.  The carrier had denied them a defense in the underlying malpractice case.

The Chief Judge of the Federal Eastern District of Washington rejected a contrary holding by a different District Judge in the same District and, moreover, predicted Washington State law in the absence of controlling State Court precedent.  The Chief Judge held that there is no implied statutory claim under a provision of Washington's Insurance Fair Conduct Act ("IFCA"), Wash. Rev. Code § 48.30.015(5).

The Court began by repeating the test established by the Supreme Court of Washington for implying a statutory claim.  This test follows the clear majority view on the issue:

    The Supreme Court of Washington utilizes the following three-part test to determine whether to recognize an implied cause of action: “first, whether the plaintiff is within the class for whose ‘especial’ benefit the statute was enacted; second, whether legislative intent, explicitly or implicitly, supports creating or denying a remedy; and third, whether implying a remedy is consistent with the underlying purpose of the legislation.”

Workland & Witherspoon, PLLC v. Evanston Ins. Co., 141 F. Supp. 3d 1148, 1153 (E.D. Wash. 2015).

In the eyes of the Chief Judge, Subsection (5) did not provide a sufficient basis for an implied statutory cause of action.  Subsection (5) simply provided a list of potential violations which could trigger a discretionary award of treble damages, or a mandatory award of attorney's fees and costs to the prevailing party under one or both of two other statutory subsections.  It did not confer a cause of action in its own right, express or implied.  Workland & Witherspoon, PLLC v. Evanston Ins. Co., 141 F. Supp. 3d 1148, 1155 (E.D. Wash. 2015).

Clearly repeating that this holding rejected the other District Judge's contrary conclusion on the implied-statutory-claim issue, the Chief Judge granted the malpractice carrier's motion to dismiss "Plaintiffs' IFCA Count."  Workland & Witherspoon, PLLC v. Evanston Ins. Co., 141 F. Supp. 3d 1148, 1156-57 (E.D. Wash. 2015).

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

"NO CONTROLLING AUTHORITY" THAT KICKBACKS ARE RICO BAD, COURT RULES.

In a Federal case in Louisiana, a Court opposed a clear trend to uphold Racketeer Influenced Corrupt Organizations Act or "RICO" claims in lender force-placed insurance cases.  The plaintiff in that case filed a putative class action on the basis of the lender's conduct acting through its servant, its mortgage monitor.

The lender's mortgage monitor selected insurance carriers from its approved list whenever the lender got ready to force-place insurance on a homeowner.  Allegedly in order to get on the approved list, insurance carriers had to pay a "kickback" to the monitor.  In other words, in order to be selected as the insurance company to provide the force-placed insurance policy and receive the premium money, a carrier had to collusively agree to pay the monitor part of the premium money.  Robinson v. Standard Mort. Corp., ___ F. Supp. 3d ___, No. 15-4123, 2016 WL 3167680, at *1 (E.D. La. June 7, 2016).

The Court in this case in Louisiana held that this alleged scheme did not reveal sufficient "divided loyalties" on the lender's part, therefore the money that the lender (and its monitor) received from the force-placed insurance company was not a kickback, and so the alleged scheme did not violate RICO.  Robinson v. Standard Mort. Corp., ___ F. Supp. 3d ___, No. 15-4123, 2016 WL 3167680, at *8 (E.D. La. June 7, 2016).  What this analysis has to do with RICO is a mystery, but in following it, the Court in this case acknowledged that it was ruling against the position taken by other Courts in other Circuits which, this Court pointed out, it was not bound to follow.  Robinson v. Standard Mort. Corp., ___ F. Supp. 3d ___, No. 15-4123, 2016 WL 3167680, at *7 (E.D. La. June 7, 2016).

The Court in this case may truly be said to have been against decisions in other Circuits before it was in favor of them.  In holding that kickbacks mean divided loyalties (for some reason), this Court followed a definition provided by a panel of the Seventh Circuit, which of course it was not bound to follow.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015).  You are invited to visit the author's website.  All rights reserved.

 

BAD FAITH IN SETTLEMENT LIMITATIONS BEGIN WHEN EXCESS JUDGMENT IS FINAL.

Following the majority view in this country, the Supreme Court of Delaware has held that a claim for bad-faith-in-settlement accrued, and the limitations period began to run, when the excess judgment against the insured became final and non-appealable.  Connelly v. State Farm Mutual Automobile Insurance Company, 135 A.3d 1271, 1281 (Del. 2016).

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with Supplements).  You are invited to visit the author's website here.  All rights reserved.