Claims and Bad Faith Law Blog

ERISA IMMUNITY FOR TEXAS OIL AGAINST SPOUSE'S UNCOVERED DEATH.

Kenneth Lindsay's wife died.  Her name was Linda.  Lindsay made a claim on what he thought was a life and accidental death and dismemberment insurance policy maintained and administered by his oil company employer.

The insurance carrier denied Lindsay's claim.  It seems that the oil company employer allegedly let the policy lapse.  So there was no coverage to help Kenneth pay his wife's death bills.

Mr. Lindsay sued his employer in Texas State court, alleging breach of fiduciary duties among other things for missing the renewal date and so not keeping the policy in force.  The Texas oil company removed the Texas case to federal court.  Mr. Lindsay filed a motion to remand back to Texas State court where he filed his claim.

The federal judge denied Lindsay's motion and, despite huge federal court dockets, kept this case on its docket in an order that illustrates the adage, "Timing is everything."  The order was entered two days before Christmas.  ERISA provided the immunity that could not be denied in this case:  Lindsay v. Logan Oil Tools, Inc., No. H–16–3010, 2016 WL 7426404 (S.D. Tex. December 23, 2016).

For more on many aspects of ERISA, see the coverage given to it by the Health Affairs Blog at www.healthaffairs.org.  See also this informative and well-researched blog post by Matthew H. Hawes and Patrick Rehfield, "Fiduciary Risk in Data Privacy and Cybersecurity?  You Bet!" (April 7, 2016).  The article by Hawes and Rehfield explores fiduciary risk under ERISA, in part.

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RELEASED FOR THE HOLIDAYS! BAD FAITH, Coblentz, & VERDICT FORMS!

In an opinion just released on Westlaw, Jimenez v. GEICO, No. 6:10–cv–640–Orl–37KRS, 2015 WL 12844296, at *4 (M.D. Fla. April 28, 2015) (italics in original), the Court wrote:

The Eleventh Circuit has specifically found that question two of the verdict form—“Do you find the consent judgment entered into by [Antonio James Jimenez] was reasonable in amount and not tainted by bad faith, fraud, collusion or without any effort to minimize liability?”—is an accurate statement of Florida law and has upheld the use of the question as a special verdict form interrogatory.  Mid-Continent Cas. Co., 534 Fed. Appx. at 928 (upholding use of the Special Verdict Form Interrogatory and explaining that “Florida law could not be clearer as to the elements necessary to enforce a consent judgment. Subsequent to the entry of the agreement, the injured party must bring an action against the insurer and prove coverage, wrongful refusal to defend, and that the settlement was reasonable and made in good faith.”)....  The special interrogatory question on the verdict form has specifically been approved by the Eleventh Circuit for use in bad faith claims involving Coblentz agreements. See id.

Parenthetically, once again a Federal Court in Florida insists on calling a consent judgment with an assignment of bad-faith rights a "Coblentz" agreement in any case in which the liability carrier refuses to defend.  The name comes from a case decided by a Federal appellate court:  "In Coblentz v. American Surety Company of New York, the Fifth Circuit held that 'if a liability insurer is informed of an action against its insured, but declines to defend the insured, the insurer may be held to a consent judgment entered in that action, absent fraud or collusion.'  416 F.2d 1059, 1062-63 (5th Cir. 1969)."  Jimenez v. GEICO, No. 6:10–cv–640–Orl–37KRS, 2015 WL 12844296, at *1 n.1 (M.D. Fla. April 28, 2015).

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WHEN THIRD-PARTY GOES TO THE MOVIES WITH "FIRST-PARTY.".

 

A Federal District Judge recently wrote that Florida's bad-faith statute, Section 624.155, provides a remedy to an insured who has a first-party bad faith claim:

Count I: Insurance Bad Faith

In Florida, an insured is authorized by statute to bring a first-party bad-faith claim against an insurer, when the insured is damaged by: (1) the insurer's failure to attempt “in good faith to settle claims when, under all the circumstances, it could and should have done so;” or (2) the insurer's violation of enumerated statutory provisions, including Fla. Stat. § 626.9541(1)(i), which prohibits unfair claim settlement practices. See Fla. Stat. § 624.155(1)(a), (b).

Kapral v. GEICO Indemnity Co., No: 8:13-cv-2967-T-36EAJ, 2016 WL 7234147, at *3 (M.D. Fla. January 5, 2016).

There is so much wrong with this that I could spend all the time between now and Christmas writing about it.

A few words will avoid that fate.  First, section 624.155 does indeed authorize "an insured" to bring a first-party bad faith claim against an insurer.  At common law in Florida before this statute was enacted, an insured did not have a claim for first-party bad faith in Florida.  That is the main reason that section 624.155 was enacted.

Second, section 624.155 provides a statutory cause of action to "any person damaged" (emphasis added) by an insurance carrier's alleged bad faith.  The statute does not limit its availability to "an insured." 

Third, in the above quotation and especially following the above quotation in its opinion, the Court in this case went on to cite and summarize Florida rules governing alleged third-party bad-faith-in-settlement.  That is after all what the Kapral case was all about, namely, alleged bad faith by a liability carrier in failing settle an underlying claim within liability policy limits.

But none of that makes "third party" mean "first party," or "first party" mean "third party."  As the warden said when the character Luke was shot to death in the movie "Cool Hand Luke":

What we have here is failure to communicate.

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NEW RULING IN FLORIDA ON BAD FAITH IN LITIGATION CONDUCT.

In a new ruling apparently reversing an emerging rule in Florida, a Federal District Judge has held on the 12th issue raised in an insurance carrier's motion in limine that evidence of the liability insurance company's litigation conduct would be irrelevant in a bad-faith-in-settlement case in Florida:

               L.  GEICO's Behavior in this Action

    GEICO believes that Plaintiffs may attempt to offer evidence that GEICO acted in bad faith in the present action, specifically in the handling of discovery. GEICO argues that the contentious discovery disputes in this case are irrelevant to a determination of whether GEICO acted in bad faith in the handling of Anderson's claim. The Court agrees and grants GEICO's motion on this issue.

Gonzalez v. GEICO General Ins. Co., No. 8:15-cv-240-T-30TBM, 2016 WL 7157551, at *4 (M.D. Fla. December 8, 2016).

Appearances can be deceiving, however.  See whether this in-limine ruling fits within decided Florida and national case law analyzed at length in 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 9:6 (3d ed. Thomson Reuters West, with 2016 Supplements).

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PRUDENTIAL INVESTIGATED WELLS FARGO'S "ROI" POLICIES. GUESS WHAT THEY FOUND?

Prudential made a deal with Wells Fargo.  Wells could issue "a low-cost life insurance policy to the bank's retail customers."  Wells Fargo issued the policies on Prudential paper.  These policies, called "MyTerm" policies, were basically "ROI" policies, or insurance for the Return on Investment.

When the story broke of 5,000 employees at Wells Fargo somehow setting up fake accounts for Wells' customers in order to get sales credits for the sales quotas set at Wells, Prudential decided to investigate these "ROI" policies issued by Wells in Prudential's name.

Guess what they found?

"'This definitely was the same kind of [alleged] conduct that Wells was committing, but through Prudential,'" said one of three whistle-blowers, "an attorney and former co-head of Prudential's corporate investigations division[.]"  Turns out that Wells Fargo employees could get sales credits good toward their sales quotas at Wells by issuing fake 'Prudential' MyTerm life insurance policies in the names of Wells' customers to cover the Return on Investment of the nonexistent accounts.  See Stacy Cowley and Matthew Goldstein, "Accusations of Fraud at Wells Fargo Spread to Sham Insurance Policies" (New York Times Online, posted on December 9, 2016), at http://www.nytimes.com/2016/12/09/business/dealbook/wells-fargo-accusations-sham-insurance-policies.html.

Lessons learned.  Some would say, though, that they already knew what there is to learn from this particular lesson.

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CALIFORNIA LAWSUIT: THEY WERE AGAINST IT, BEFORE THEY WENT AND DID IT.

California recently required insurance carriers to roll back premium rates.

State Farm has sued to keep their rates.   Read the story of this insurance litigation here:  See Andrew Khouri, "State Farm Files Lawsuit to Block Historic Rollback in Insurance Rates" (Los Angeles Times Online, posted Wednesday, December 7, 2016), and accessible with a copy-and-paste into your browser:  http://www.latimes.com/business/la-fi-state-farm-insurance-20161206-story.html.

 

 

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FLORIDA REJECTS KICKBACKS IN INSURANCE RATES.

This article continues an article begun on Insurance Claims and Issues Blog on Monday, December 5, 2016, accessible here and at http://insuranceclaimsissues.typepad.com/insurance_claims_and_issu/2016/12/kickbacks-allowed-in-insurance-rates.html.

In lender force-placed insurance cases, force-placed insurance premiums are paid by lenders, but the lenders do not complain that the premiums are too high in contrast to the situation of consumers who claim in utilities rates lawsuits that a utility's rates are too high.  Lenders hide the added expense of LFPI premiums in the borrower's monthly loan payment, but the borrower does not pay the force-placed insurance premiums as such.  When these issues are presented by defendants' motions to dismiss, such issues are usually resolved in federal district courts where most of these cases and the vast majority of these motions to dismiss are filed. 

    Further, insurance companies which provide lenders with force-placed insurance policies regularly "redact" or "seal" whole swaths of their rate filings.  See, e.g., the Florida Office of Insurance Regulation administrative docket for the rate filing titled, In the Matter of:  American Security Insurance Company, Case No. 141841-13, Rate File Log #13-04125.  As if to drive this point home, the carrier in that case successfully contended in a different context, without opposition, that the terms of its contracts including with mortgage lenders are trade secrets and should not be revealed.  See ASIC v. State, Office of Ins. Reg., No. 2013-CA-001701, 2015 WL 10384359, at *4 (Fla. Cir. Ct., 2d Cir., Leon County, Aug. 13, 2015).    

    Another significant problem with transferring the filed rate doctrine from utilities regulation to use in defense of insurance cases generally,  applies also to LFPI cases in particular.  There is no known reporting system of administrative agency decisions concerning filed insurance rates.

    In Florida, however, the Insurance Commissioner has consistently rejected kickbacks in filed insurance rates -- and just as consistently has required force-placed insurance carriers to agree not to include kickbacks if they want approval of their insurance rates in Florida.  E.g.,  In re:  American Modern Insurance Group, Inc., No. 174210-15-CO, Consent Order (Fla. O.I.R. Sept. 16, 2015), accessible online with its Exhibit "A," July 6, 2015 Florida Office of Insurance Regulation "Target Conduct Final Examination Rep't of American Modern Home Ins. Co.," et al., at http://www.floir.com/siteDocuments/American_Modern_Insurance_Group_Inc%20_Consent_Order_174210-15-CO.pdf (last accessed on Monday, December 5, 2016);  In re:  American Security Insurance Company, No. 14-141841-13,  Consent Order (Florida O.I.R. October 7, 2013), accessible online at http://www.floir.com/siteDocuments/AmericanSecurity141841-13-CO.pdf (last accessed on Monday, December 5, 2016); In re: Praetorian Insurance Company, No. 141851-13-CO, Consent Order (Fla. OIR April 12, 2014), at http://www.floir.com/siteDocuments/Praetorian141851-13-CO.pdf (last accessed on Monday, December 5, 2016).

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To be continued on Insurance Claims and Issues Blog.  NEXT:  FLORIDA REJECTS THE FILED RATE DOCTRINE IN INSURANCE.

FLORIDA STATUTORY ATTORNEY'S FEES, NOT BAD FAITH DAMAGES.

In Life Changing Ministries, Inc. v. Canopius US Ins., Inc., No. 5:15-cv-59-Oc-30PRL, 2016 WL 6947341 (M.D. Fla. November 28, 2016) the facts involved a sinkhole claim that the carrier initially denied, the policyholder filed suit, and then the carrier paid.  The upshot was that statutory attorney's fees were mandated under Fla. Stat. § 626.9373.

So the District Court awarded attorney's fees under the statute providing that where a policyholder prevails on an insurance claim against a surplus lines carrier in Florida, that policyholder is entitled to its reasonable attorney's fees.

Reluctantly.

Reluctantly, because the carrier initially denied coverage based on what the District Judge called a "thorough investigation."  The carrier's investigation included an engineering report prepared in accordance with prevailing engineering practices, the policyholder's own experts said.  The carrier paid the claim after the policyholder's lawyer sent it a report prepared by an engineer retained by the policyholder.  Unfortunately for the carrier's exposure to attorney's fees in this case, the carrier paid the policyholder's claim after the policyholder filed a lawsuit.

It seems kind of sneaky on the face of it, you have to agree, that the policyholder's attorney sent the report to the carrier after the 30-day "safe harbor" period had come and gone, even though the report had been prepared long before the safe harbor period began.  This meant of course that the carrier had no opportunity to "cure" -- at least no opportunity based on the competing engineer's report, although of course it had 30 days to "cure" for any reason it might choose.

The Federal District Court seemed to think that the policyholder's request for statutory attorney's fees, and that the Court's own award of statutory attorney's fees in this case, was the moral equivalent if you will of consequential "bad faith" damages.  Not so, Your Honor.

The award of statutory attorney's fees was mandated by the Florida Statute because this policyholder prevailed against a surplus lines carrier.  Period.  The policyholder did not request attorney's fees as consequential damages.  As you pointed out, Your Honor, the policyholder in this case "sued for breach of contract in state court[.]"  That means that the whole lawsuit was about a breach of contract which, once the policyholder's insurance claim was denied and if the policyholder prevailed on the claim that the insurance contract was breached, then under Florida case law the carrier effectively 'confessed judgment' that the contract was breached when it paid the policyholder's claim after the policyholder filed a lawsuit.

For that matter, although the policyholder served a Civil Remedy Notice of Insurer Violation (CRN) of Florida's so-called bad faith statute, nothing in your opinion reflects that this policyholder ever sued for bad faith in this case.

But as you pointed out, Your Honor, when you reach the point of actually calculating how much of an award is warranted under the evidence in this case, "[t]he Court, of course, can take this into account when determining the reasonableness of [the policyholder's] attorneys' fees."  Life Changing Ministries, Inc. v. Canopius US Ins., Inc., No. 5:15-cv-59-Oc-30PRL, 2016 WL 6947341, at *5 (M.D. Fla. November 28, 2016).

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