Claims and Bad Faith Law Blog

DID YOU EVER THINK COVERAGE DEPENDED ON ... RESPECT FOR LAW?

"The insurance markets have stubbornly refused to fail."  Larry Levitt, senior vice president at the Kaiser Family Foundation, quoted in Editorial, "Predictions of Obamacare's Demise Fail Again" (posted in the Boston Globe online on Sunday, August 27, 2017).

The current federal government decided not to spend money appropriated by Congress for advertising upcoming deadlines to sign up for Healthcare, and to remind people how to apply for coverage on the exchanges (and eligible for tax credits for their premium payments).  Failing a change of federal government direction, "a consortium of insurers offering plans on the exchanges should come up with advertising of its own."  "Further, TV and radio stations should offer public service announcements" or PSA's, it has been suggested, to remind people of the November 1 - December 15 enrollment period.  See Editorial, "Predictions of Obamacare's Demise Fail Again" (posted in the Boston Globe online on Sunday, August 27, 2017).

There really shouldn't be secrecy about signing up for health insurance coverage.  The need for healthcare will not go away just because some people ignore it.

It is too much to hope, perhaps, that the current federal government will do anything much to help those who need health insurance.  If that proves to be the case, perhaps the private sector will.

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DISPARATE IMPACT CLAIM AGAINST insurer WITHSTANDS SUPREME COURT'S CONSTRICTIONS.

In National Fair Housing Alliance v. Travelers Indem. Co., ___ F. Supp. 3d ___, Case No. 16–928 (JDB), 2017 WL 3608232 (D.D.C. August 21, 2017), the court held that a disparate impact claim under the Housing Rights Act against an insurance carrier withstands recent U.S. Supreme Court contractions and limitations.  It is wise to let the District Court speak for itself in this case.

"This case raises an oft-litigated Fair Housing Act claim: whether an insurer’s facially-neutral policy has a disparate impact on the availability of housing for members of a protected class. The twist, however, is that it follows shortly after the Supreme Court’s" Inclusive Communities decision constricting the pleading of disparate impact claims.  See National Fair Housing Alliance v. Travelers Indem. Co., ___ F. Supp. 3d ___, Case No. 16–928 (JDB), 2017 WL 3608232, at *1 (D.D.C. August 21, 2017).

In a nutshell, the District Judge held that the complaint met the newly minted pleadings standards of the High Court:

The Court determines that plaintiff National Fair Housing Alliance (NFHA) has standing, and that under Inclusive Communities' more stringent pleading standard for disparate-impact claims, NFHA has stated a claim under the FHA [Fair Housing Act].

National Fair Housing Alliance v. Travelers Indem. Co., ___ F. Supp. 3d ___, Case No. 16–928 (JDB), 2017 WL 3608232, at *1 (D.D.C. August 21, 2017).

Moreover, the plaintiff's allegation of causation on the face of its complaint was legally sufficient to plead all of its claims:

    The Court concludes that NFHA has standing to bring these claims, and that NFHA has sufficiently pleaded a causal connection between Travelers’ policy and a disparate impact based on race and sex to make out a prima facie claim under the FHA. The Court also concludes that the DCHRA [D.C. Human Rights Act] does apply to habitational insurance and that NFHA has stated a claim under that act as well. The Court will therefore deny Travelers’ motion to dismiss.

National Fair Housing Alliance v. Travelers Indem. Co., ___ F. Supp. 3d ___, Case No. 16–928 (JDB), 2017 WL 3608232, at *3 (D.D.C. August 21, 2017) (emphasis added).

Insurance companies' exposure to the extracontractual risk of disparate impact discrimination claims.  Another risk of exposure to pay extracontractual damages.

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Is This What You Mean by Bad Faith?

A fired former employee "in Kansas Secretary of State Kris Kobach's office alleges in a lawsuit [that was] headed to trial on Aug. 21 that she was fired because she didn't go to church enough."  Trial Over Bias Claim Against Kansas Secretary of State Kobach’s Office Begins, posted online on Monday, August 21, 2017 by Insurance Law Journal, also available by copying and pasting into your browser http://www.insurancejournal.com/news/midwest/2017/

08/21/461906.htm

Talk about bad faith!

 

Seriously, although Mr. Kobach reportedly held regular "prayer and Bible study sessions in his office" when the traditional work day was over, he is not a defendant and he has called the fired former employee's lawsuit "ridiculous."  Currently, Mr. Kobach is the vice-chair of the federal government's appointed commission on voter fraud.

 

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THE PROCEDURE WILL DISMISS YOU IN THE END.

Another lender force-placed insurance class action has been dismissed, not because of the substance, but on account of the procedure.  King v. Homeward Residential, Inc. & Ocwen Loan Servicing, LLC, CASE NO: 3:14-CV-00183 BSM, 2017 WL 3205477 (E.D. Ark. July 27, 2017).

Dennis Wall is the author of "Lender Force-Placed Insurance Practices" published by the American Bar Association.

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EXCLUSION NEVER APPLIED, COVERAGE. BUT BAD FAITH? MEET, CONFER, ADVISE.

In RSUI Indemnity Co. v New Horizon Kids Quest, Inc., Civ. No. 16-28 (RHK/TNL), 2017 WL 3382061 (D. Minn. August 4, 2017), RSUI and The Travelers issued policies that covered the same event, namely, a sexual assault by one minor upon another.

The Travelers defended; RSUI, not so much.  RSUI issued a reservation of rights only after the underlying liability claims were settled.  At the time of the settlement, RSUI's claims representative actually wrote that the settlement made sense -- but apparently held back on writing any position against RSUI's coverage.

Applying Minnesota law, a federal judge interpreted the exclusion raised after the settlement by RSUI against coverage for the settlement.  It was a sexual abuse exclusion, and the judge ruled that it just did not apply:

To succeed, [RSUI] must put forth evidence that the jury awarded damages for an actual or threatened sexual abuse, as required by the Exclusion's express terms. (Id. Ex. E at 11.)

    RSUI simply cannot do so. It has submitted no evidence that the jury determined sexual abuse had occurred or that one cent of the award was based on such a determination. As noted, RSUI consented to New Horizon's stipulation in the Underlying Lawsuit that an “assault” had occurred.

RSUI Indemnity Co. v New Horizon Kids Quest, Inc., Civ. No. 16-28 (RHK/TNL), 2017 WL 3382061, at *3 (D. Minn. August 4, 2017).  But that is not the end of the story, as they say.  There was more:

CONCLUSION

Based on the foregoing, and all the files, records, and proceedings herein, IT IS ORDERED that New Horizon's Motion for Partial Summary Judgment (Doc. No. 47) is GRANTED and RSUI's Motion for Partial Summary Judgment (Doc. No. 80) is DENIED.

    This should end the matter. However, the parties' Motion papers do not address the precise impact of the Court's determination that the Exclusion is inapplicable. For example, what becomes of New Horizon's claim for breach of the implied covenant of good faith and fair dealing? Accordingly, the parties shall meet and confer regarding what remains of this matter in light of the Court's decision, whether judgment should be entered, and if so, its precise form. The parties shall file written positions with the Court regarding these issues, either jointly or separately, by August 17, 2017. This is not an invitation to reargue the propriety of summary judgment, and no further submissions (whether by memorandum, letter, affidavit, or otherwise) will be permitted on the matters addressed herein absent further Order of the Court.

RSUI Indemnity Co. v New Horizon Kids Quest, Inc., Civ. No. 16-28 (RHK/TNL), 2017 WL 3382061, at *5 (D. Minn. August 4, 2017).

This is an unusual solution to a dilemma apparently brought about by the motions for summary judgment, neither of which seems to have even mentioned the consequences of a holding of no coverage on the policyholder's glaring counterclaim for breach of the implied covenant of good faith and fair dealing.

I think it is a good solution.  Novel things can also be good things, and this is one of them in my judgment.

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HOW DO YOU INSURE AGAINST IGNORANCE?

Today is the 43rd anniversary if that is the right word, of the first resignation by a U.S. President.

 Begging Your Reader's indulgence, I want to depart a little bit today from our Insurance Bad Faith theme and tell you about a reporter I heard on the radio yesterday.

This was in the context of a longer report featuring many people talking about whether the federal government can make local police officers hold suspects in jail until federal immigration and customs agents can come and take them away.

An exchange that caught my attention on this radio reporting was when one reporter asked another if it is important to the federal agents to have local police officers hold suspects for the federal government.  The reporter who was asked this responded very like this:  "It is necessary for the federal agents to do their job of deporting undocumented immigrants who have committed crimes.  How can the federal agents do their job unless local police officers identify these undocumented immigrants so that they can be deported?"

Wait a minute.  People who are held in jail by local police officers are suspects.  They have not been convicted of anything.

So what this guy was saying on national radio was that federal agents can deport "bad" people who are suspected of committing crimes.

If people can be deported because some other people think they are "bad," then in the eyes of at least some, a whole lot of people in Washington would be deported.

And seriously.  If federal agents want to find undocumented immigrants who have been convicted of serious crimes so that the federal government can throw them out of the country, the federal agents can check the public records of the nation's prisons.  That may not be as much fun as wearing a gun and terrorizing people, but it is way more efficient if the goal is to deport undocumented immigrants who are convicted criminals.

So, thank you for indulging me today.  As it turns out, my errant thoughts are not so errant after all:  How do you insure against ignorance?  And who told you that ignorance is good faith?

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LENDER FORCE-PLACED AUTO INSURANCE, REPOSSESSION, AND CHURNING HUGE PROFITS.

Other features of this story were addressed in an article published on Monday of this week on Insurance Claims and Issues Blog.

Wells Fargo admittedly placed "collateral protection insurance" on its auto-loan borrowers and forced the premiums onto the borrowers' auto loans.  Wells only disputes how many of its customers it did this to. 

Wells Fargo also admits that it sometimes force-placed the insurance even when the borrowers already had auto insurance.

Wells Fargo further admits that the force-placed insurance premiums sometimes forced the borrowers into having their cars repossessed because they could not make the payments Wells added to their auto loans.

These admissions come to us courtesy of a report commissioned by Wells Fargo.  See  Alexa D'Angelo and James Rufus Koren, "Wells Fargo Charged Customers for Unneeded Auto Insurance -- Then Repossessed Their Cars" (Los Angeles Times Online, posted on Friday, July 28, 2017), also accessible at http://www.latimes.com/business/technology/la-fi-wells-fargo-insurance-20170728-story.html.

The consequences of Wells's admitted conduct even go beyond its customers.  The pending Consumer Financial Protection Bureau (CFPB) rule prohibiting mandatory arbitration provisions and class-action waivers in consumer contracts is reportedly being held up by the news from Wells.  "Some of Wells' auto loan contracts contain arbitration clauses, a spokesman said, which could become a further lightening rod in the dispute over whether customers should be allowed to band together in class-action lawsuits."  Kate Berry, "New Wells Scandal Harms Effort to Nix CFPB Arbitration Rule" (American Banker Online, posted on Friday, July 28, 2017), also available by pasting this website into your browser, but be forewarned that American Banker articles all seem to be protected by a paywall requiring a subscription, and this article is certainly one of those:  https://www.americanbanker.com/news/new-wells-scandal-harms-effort-to-nix-cfpb-arbitration-rule?brief=00000158-07c7-d3f4-a9f9-37df9bc10000.

Dennis Wall is the author of "Lender Force-Placed Insurance Practices" published by the American Bar Association.

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WHEN Does A PRIMARY CARRIER HAVE "UNCLEAN HANDS" IN SUBROGATION?

In a case rich with issues and holdings, Judge Rakoff of the U.S. District Court for the Southern District of New York was faced with an excess carrier which raised "the equitable 'unclean hands' doctrine" as a bar to a primary carrier's principal defense in a subrogation case.  The excess carrier claimed subrogation rights against the primary carrier allegedly by effectively asserting rights against its own insured, which cannot be done in subrogation (known as "the antisubrogation rule").

So, the excess carrier pointed out that subrogation is an equitable remedy and if the primary carrier had "unclean hands," then the primary carrier should not be allowed to raise the antisubrogation rule in equity.

Judge Rakoff disagreed in a subrogation case arising under New York law.  He wrote that the essential proofs in that case defeated the excess carrier's 'unclean hands' contention on the record:

...American Guarantee argues that ACE is barred from asserting the antisubrogation rule because ACE acted inequitably in the state-court litigation. (Citation omitted.) Here, American Guarantee argues that ACE, which controlled the defense of Wager Contracting in the state-court lawsuit, authorized a legal strategy focused on minimizing ACE's losses and shifting liability to American Guarantee rather than on defending Wager Contracting against all claims.

    This is, in effect, an invocation of the equitable “unclean hands” doctrine.  Under New York law, American Guarantee, as the proponent of the unclean hands defense, must demonstrate that “(1) [ACE] is guilty of immoral, unconscionable conduct; (2) the conduct was relied upon by [American Guarantee]; and (3) [American Guarantee] was injured thereby.” (Citations omitted.) 

    American Guarantee has failed to establish (or even raise a genuine dispute of material fact) that the unclean hands doctrine bars ACE from asserting the antisubrogation rule. The undisputed evidence shows that the counsel retained by ACE to defend Wager Contracting conscientiously acted in Wager Contracting's best interest in the underlying litigation. At bottom, then, American Guarantee's argument is that it was inequitable not to prioritize American Guarantee's interests in the case. But the mere fact that Wager Contracting's interests did not align with American Guarantee's does not even begin to suggest the type of bad-faith misconduct needed to make out a defense of unclean hands.

Ace Am. Ins. Co. v. American Guar. Liab. Ins. Co., ___ F. Supp. 3d ___, No. 16 Civ 8773 (JSR), 2017 WL 2840286, at *9 (S.D.N.Y. July 2, 2017) (emphasis added by boldface and italics; underlining by Judge Rakoff in original).

End result:  There is at  least a slim possibility, in theory, that the equitable defense of "unclean hands" is available in an equitable subrogation action between an excess carrier and a primary carrier.  The reality will mostly trump the theory in this instance, as this case shows.

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