Claims and Bad Faith Law Blog

GOODBYE 2020, WELCOME IN 2021!

Have a Happy New Year every day of the year to come!

P.S.

We've earned it!

 

"JUST A WORD BEFORE I GO, TO WHOM IT MAY CONCERN ...."

Before 2020 came to an end, I left the following Comments on regulations.gov in response to yet another proposed new rule by the current regime.  I encourage you to do the same.

Or, leave your own Comments on or before the due date of January 4, 2021.

The identifying information for this proposed new rule is below in order to leave your Comments.   Here is a link to the proposed rule, followed by my Comments as an example that you can accept or reject when you write your own Comments:  Department of the Treasury, Office of the Comptroller of the Currency (OCC) Notice of Proposed Rulemaking, titled Fair Access to Financial Services.

Link: https://www.federalregister.gov/documents/2020/11/25/2020-26067/fair-access-to-financial-services

Comment:  ID: OCC-2020-0042

This is a new rule proposed by the Office of the Comptroller of the Currency that, as The Regulatory Review Weekly Summary on November 27, 2020 described it, "would prevent banks from refusing to lend to entire categories of lawful businesses, most notably ensuring that fossil fuel companies may not be denied financing solely on the basis of their business category [i.e., on the basis of their being fossil fuel companies]."

        The OCC justified its proposed new rule as ensuring fair access to bank services, capital, and credit on two grounds that are seemingly inconsistent: One, that the proposed rule "would codify more than a decade of OCC guidance" and, second, it would implement the far more recent language found in Title III of the Dodd-Frank Act in 2010.

        A representative of the Sierra Club put the proposed rule in context, reportedly saying that the Dodd-Frank Act was “not designed to force banks to invest in projects they deem to be overly risky and not good investments.”

        The OCC is not properly in the business of regulating business decisions of banks (or any other investors) about what to invest in, and what not to invest in. More to the point, the OCC does not have the authority to do so.

        This proposed rule is a failure as policy, and it is a failure because it is administrative agency overreach. For these reasons, it should be withdrawn and if not withdrawn, then it will be struck down judicially or legislatively after it is issued.

        Thank you for your consideration of these Comments.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

ANOTHER POST-LOSS ASSIGNMENT HELD VALID: NOW FLORIDA.

(Luis Sinco / Los Angeles Times) 

Extreme Energy Fire & Water Restoration LLC came to Homestead.  They went to the home of Mr. and Mrs. Julio and Nora Lugones.

The Lugoneses could not afford what Extreme needed to repair and mitigate damage to their home.  However, they had a homeowner's policy with Lloyd's.  Extreme contracted with the Lugoneses to repair and mitigate the damage to the Lugoneses' home in exchange for Lugoneses' right to be paid for the loss under their homeowner's policy with Lloyd's.

There was a problem, though, it seemed.  Lloyd's thought so.  There was an anti-assignment provision in the Lloyd's policy.  Lloyd's refused to recognize Extreme as the Lugoneses' assignee of the policy proceeds.

So Extreme sued Lloyd's for breach of the homeowner's insurance contract.  Lloyd's defended on the basis of the anti-assignment clause in the same  homeowner's insurance policy.  The trial judge agreed with Lloyd's that the assignment was barred by the policy.

On appeal, Florida's Third District Court of Appeal reversed.  The Florida appellate court made short work of Lloyd's argument:

    For more than a century, the law in Florida has been well-settled: an insured need not obtain the consent of the insurer before making a post-loss assignment of its right to payment of a claim under an insurance policy, and any attempt by an insurer to restrict the insured's right to do so is invalid. 

Extreme Emergency Fire & Water Restor. LLC v. Certain Underwriters at Lloyd's of London, No. 3D20-5, 2020 WL 7379133, at *1 (Fla. 3d DCA December 16, 2020) (stated NOT FINAL).

That settles the matter in Florida, at least until any further review by the full Third District Court of Appeal in this case, perhaps, or by the Supreme Court of Florida in this or some other case.  At the same time, the Supreme Court of Oklahoma reached a similar result one day before the decision was reached in the Extreme case.  The Oklahoma Supreme Court's decision was discussed in an article published here the day after it was decided, MAJORITY WINNER RECOGNIZED ON ISSUE OF POST-LOSS ASSIGNMENT ... OF PROPERTY INSURANCE COVERAGE CLAIM.  That was the same day that the Third District panel published the Extreme decision, which is now the subject of this article.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

2 IN 1 FROM 5TH CIRCUIT, cont'd: THE 1 FOR U.S.A.

(Photo Shepard's/McGraw-Hill)

Yesterday in this space, we considered the effects on Texas law of the rulings in Am. Guar. & Liab. Ins. Co. v. ACE Am. Ins. Co., ___ F.3d ___, No. 19-20779, 2020 WL 7487067 (5th Cir. December 21, 2020).  This is a decision of  a panel of the Fifth Circuit Court of Appeals in a case of alleged insurer bad faith or, to be more specific this being a Texas case, in a case of alleged violations of the Texas Stowers doctrine.

Readers will recall the posture of this case on appeal.  The case was brought by an excess carrier, American Guarantee, against a primary carrier, ACE, to recover the amounts paid by the excess carrier above the primary's policy limits in a settlement of an underlying case against their common insured, Brickman Group Ltd., LLC.  The excess carrier alleged that the primary carrier violated the Texas Stowers doctrine.

The Stowers doctrine is not really unique to Texas.  It or a form of it is applied in Courts in insurance bad faith cases in many other jurisdictions in the nation.

 "Under Stowers, an insurer is required to exercise ordinary care in responding to qualifying settlement demands; when presented with a “settlement demand[ ] within policy limits,” an insurer cannot respond negligently.  Whether an insurer responds negligently hinges on whether 'the terms of the demand are such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured's potential exposure to an excess judgment.'” American Guarantee, 2020 WL 7487067, at *6 (citations omitted).

In an article published here yesterday, we took a look at one point of the decision, which was the effect on the Texas law of insurers' extracontractual or "bad faith" liability for sums beyond their policy limits.  Today, we will consider the second point that the panel made in its decision in this case, a point that will unequivocally affect the law of insurer bad faith in the United States.

In this case, ACE, the primary carrier, refused to negotiate a settlement demand made during the trial of the underlying case against its insured, Brickman.  The primary carrier took the position on this particular settlement demand that there was a potential conflict that might have prevented settlement.  ACE contended that the parent making this settlement demand on her behalf and on behalf of her children suing the insured in the underlying case had a potential conflict, because she made the demand on her own behalf as well as on behalf of her children.

That would mean, the primary carrier contended, that it could not accept the mother's settlement demand because the children were not represented by a guardian, and the court in the underlying case had not approved settlement of the minors' claims against the insured.

In a case of what it saw as a case of first impression under Texas law, the Fifth Circuit panel rejected this position in its entirety.  Breaking their decision out as the panel addressed the elements of ACE's position, first, Texas law did not require its State Courts to appoint guardians ad litem for the purpose of accepting settlements in such cases which, in any event, would have to be approved by the court in those cases.  American Guarantee, 2020 WL 7487067, at *4-*6.

Second, a mere potential for conflict was not enough to prevent the primary carrier from even negotiating a settlement.  American Guarantee, 2020 WL 7487067, at *6.

This decision under Texas law has echoes of a decision under Florida law.  Both decisions represent a very important point that most judges see in the law of insurer bad faith that, judging from the decided case law, apparently some insurance carriers do not see when they handle liability claims.

The decision under Florida law came in the case of Berges v. Infinity Ins. Co., 896 So. 2d 665 (Fla. 2004).  The decision has been distinguished in several succeeding cases, including a few in Florida federal and State courts, but it continues to exemplify the law in similar cases.

In Berges, a liability carrier contended that it could not settle the underlying case against its insured because the underlying case involved claims of minors and "the claimant has not obtained necessary court approvals of the settlement prior to making the offer."  Berges, 896 So. 2d at 672.

In Berges, the majority opinion of a divided Florida Supreme Court rejected this argument in its entirety, just as the Fifth Circuit panel years later would reject a similar argument in American Guarantee:

Neither precedent nor the applicable statutes regarding settlements involving minors or on behalf of decedents require prior court approval for a valid settlement offer to be made. The focus in this case extends to Infinity’s entire course of conduct in handling the claim and in failing to consummate the settlement and pay the policy limits within the time limits demanded by Taylor.

 Berges, 896 So. 2d at 675.

Although the American Guarantee panel did not cite to Berges, both decisions share something vital.  The basic point common to the Berges and American Guarantee decisions is a point that most judges grasp in most cases across the United States:  Liability carriers do not face extracontractual liability, or liability to pay money outside their contractual policy limits, because they cannot settle a given case.

The inability to settle a claim does not matter at all to the risk of "bad faith" exposure, not from a theoretical or even from a realistic view of the possibility of settling a given case against an insured.

The gravamen, gist, or crux of a "bad faith" action by whatever name, is a liability carrier's insistence on not doing anything toward settlement even in response to a settlement demand in a case filed against its insured.

Liability carriers do not have to settle cases filed against their insureds or face the risk of bad-faith exposure.  In the eyes of most Courts across the United States, liability carriers do have to do something to negotiate settlement.  Whether that "something" is legally sufficient in a given bad-faith case will often depend on what that "something" was, but objectively verifiable action and not posturing is required.

Standing on ceremony, as it were, and waiting for ideal situations to happen will not cut it.  Again, judges do not require perfection.  But they do require objectively verifiable, reasonable conduct to protect the insured from an excess judgment.

Experienced liability carriers that employ claims professionals know this. 

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

2 IN 1 FROM 5TH CIRCUIT: 1 FOR TEXAS, 1 FOR U.S.A.

(Photo The Florida Channel)

In Am. Guar. & Liab. Ins. Co. v. ACE Am. Ins. Co., ___ F.3d ___, No. 19-20779, 2020 WL 7487067 (5th Cir. December 21, 2020), a panel of the Fifth Circuit Court of Appeals made two distinct points that are significant for Insurance Claims and Bad Faith Law.

It may be necessary to put the case and the appellate panel in context.  The case was brought by an excess carrier against a primary carrier to recover the amounts paid by the excess carrier above the primary's policy limits in a settlement of an underlying case against their common insured.

Putting the appellate panel in context, Judge Edith Jones wrote the opinion.  A fiery polemic, Judge Jones is well-known for her opinions on political issues.  Her rulings in insurance cases are generally viewed as favorable to the insurance industry, to put it mildly, such as her attempt to invalidate Mississippi case law unfavorable to insurance companies in contrast to rulings of judges in Mississippi who actually have the job of writing Mississippi case law.

Parenthetically, Judge Willett, famous for his humorous Twitter musings, was also on the same panel.

One point this panel made in its decision concerns Texas law, and another point concerns the law of insurance bad faith throughout the United States.  The Texas point will be discussed here today; the point important to the USA will be discussed here tomorrow.

On the first point, concerning Texas law, the panel applied what in Texas case law is called "the Stowers doctrine."  It is a 'doctrine' that is not really unique to Texas.  It or a form of it is applied in Courts in insurance bad faith cases in many other jurisdictions in the nation.

 "Under Stowers, an insurer is required to exercise ordinary care in responding to qualifying settlement demands; when presented with a “settlement demand[ ] within policy limits,” an insurer cannot respond negligently.  Whether an insurer responds negligently hinges on whether 'the terms of the demand are such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured's potential exposure to an excess judgment.'” American Guarantee, 2020 WL 7487067, at *6 (citations omitted).

Given the facts in the record of the underlying case at the time that the settlement demand in question was made, the panel had very little trouble affirming the trial judge's determination that there was sufficient evidence that the primary carrier violated the Stowers doctrine in this case.  The panel decision gratuitously and implicitly inserted a view that the primary carrier violated the doctrine here, but that was never the point on appeal.

From a legal point of view, the appeal in this case was strictly concerned with the sufficiency of the evidence to support the trial court's ruling on the point:

    ACE omits that the district court did not consider the possibility of appellate reversal because ACE made no such argument. ACE concededly never argued to that court as a legal matter that Stowers requires consideration of appellate prospects. ACE cannot raise this novel legal theory for the first time on appeal, and we do not address it.  But even if we review the evidentiary sufficiency challenge de novo, the evidence is clearly sufficient to support the bench trial verdict that “[a] reasonable insurer would have reevaluated the settlement value of the case [and accepted the Braswells’ third offer].” After all, by the time that offer was made, the trial had taken a demonstrable turn against Brickman.  Two of the adverse rulings (disallowing evidence that the truck was legally parked and allowing the stop-short statement attributed to a Brickman employee) aggravated Brickman's greatest known weaknesses in this case. Considering all of the trial circumstances, an “ordinarily prudent insurer” in ACE's position would have realized that the “likelihood and degree” of Brickman's “potential exposure to an excess judgment” had materially worsened since the trial's inception. When presented with the Braswells’ third offer, an ordinary, prudent insurer would have accepted it. The evidence placed before the district court is sufficient to support that ACE violated its Stowers duty by failing to reevaluate the settlement value of the case and accept the Braswells’ reasonable offer.

American Guarantee, 2020 WL 7487067, at *7 (citations omitted).

This long quotation displays the evidence-based decision of the appellate panel that the evidence of a Stowers violation was legally sufficient in this case.  That is a point important to Texas law concerning insurer extracontractual liability.  It will also perhaps be important in other cases in jurisdictions outside of Texas as well.

Tomorrow, we will consider the second point that the panel made in its decision in this case, a point that will unequivocally affect the law of insurer bad faith in the United States.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

HAPPIEST HOLIDAY NEWS: NOT ONE, TWO VACCINES & A NEW ADMINISTRATION!

 

(Louis Sinco / Los Angeles Times)

The good news is in the title of this article.  Happy Holidays to All, and to All a Happy New Year every day throughout the year to come in 2021!

 

 

 

 

 

This article was originally published on December 23rd on Claims and Issues Blog.  It is so good that I had to do it again, here!  Merry Christmas and Happy Holidays!

THE CORONAVIRUS IS NOT A "POLLUTANT" EXCLUDED FROM INSURANCE COVERAGE.

 

(LexisNexis)

There was a brief but confusing statement in the opinion in Urogynecology Specialist of Fla. LLC v. Sentinel Ins. Co., No. 6:20-cv-1174, 2020 WL 5939172, at *4 (M.D. Fla. Sept. 24, 2020).  The particular holding stated there was that putting the virus exclusion in a pollution exclusion "'does not logically align'" with the other pollutants.

This made little sense in the public context of that opinion.  For one thing, the opinion in Urogynecology never referred to the pollution exclusion again and for another, the Court never expressly stated that the underwriters of that policy wrote a virus into a pollution exclusion.

However, as an article posted here on December 17, 2020 made clear, research on PACER into the policy involved showed that the underwriters of that policy placed the virus exclusion with the policy's pollution exclusion.  Whether that "'grouping of the virus exclusion with other pollutants'" was intended or inadvertent, that is one reason that the policy was made ambiguous and so was construed in favor of the insured which claimed covered losses as a result of COVID-19.  See THE PANDEMIC HAS REVEALED MANY THINGS.  VIRUS EXCLUSION INTERPRETATION DISPLAYED, Dec. 17, 2020.

Now a Court has followed Urogynecology in holding that COVID-19 does not belong in a pollution exclusion, at least if the carrier which issued the policy wants to deny insurance coverage under an all-risks policy.

However, that was the second issue confronting the Court in JGB Vegas Retail Lessee, LLC v. Starr Surplus Lines Ins. Co., No. A-20-816628-B, 2020 WL 7190023 (Nev. Dist. Ct., Clark County, Nov. 30, 2020 Trial Order).  The first issue was whether the policyholder-plaintiff, which operated a mall until the mall was shut down by government orders because of the coronavirus, alleged direct physical loss or damage to property from COVID-19.

The Court's answer in this case to this first question was as meaningful to coverage analysis as its answer to the second question, the one involving the exclusion of damage caused by a virus.  In answering the first question, whether the policyholder sufficiently alleged direct physical loss or damage to property from COVID-19, the Court accepted the plaintiff's allegations that the virus was physically present at the insured mall and that COVID-19's physical presence caused damage to the property. 

As the Court put it, "The Court finds that JGB's Complaint sufficiently alleges losses stemming from the direct physical loss and/or damage to property from COVID-19 to trigger Starr's obligations" under the policy.  JGB, 2020 WL 7190023, at * 2.

The Nevada State court's treatment of "direct physical loss or damage" in this case is likely to be followed by judges in other courts in other States across the country.  For this Court in this case, to say again, it is enough for a plaintiff claiming coverage under an all risks policy to trigger coverage, to allege "the physical presence and known facts about the coronavirus[.]"  "Presence of COVID-19" = "direct physical loss or damage in a case like this," to put the Court's analysis here into an equation likely to be applied in other cases.

Returning to the second question in this case, the one asking whether and how a "virus" is a "pollutant," it is important to read the policy, as in any case.  The underwriters who wrote the policy at issue in this case did not write a separate virus exclusion, as the underwriters who wrote the Urogynecology policy may have tried to do.

Rather, the underwriters who wrote the JGB policy expressly inserted the word, "virus," into a pre-existing policy definition of "POLLUTANT or CONTAMINANTS."  The JGB Court reproduced the policy language verbatim and in context, see JGB, 2020 WL 7190023, at *3.  Expressly writing a virus into a policy definition of pollutants and contaminants did not work either.

Working from the premise of policy interpretation that a carrier bears the burden of proving that one of the exclusions in its policy applies to the case at hand, the Court held that the carrier did not meet that burden in this case.  "Starr has not shown that it is unreasonable to interpret the Pollution and Contamination exclusion to apply only to instances of traditional and industrial pollution and contamination that is not at issue here, where JGB's losses are alleged to be the result of a naturally-occurring, communicable disease."  JGB, 2020 WL 7190023, at *3. 

The policyholder also alleged claims for violations of Nevada's Unfair Claims Practices Act and for breach of the covenant of good faith and fair dealing.  Nevada follows a notice pleading standard to determine motions to dismiss.  Once the Court determined that the policyholder sufficiently alleged a claim to insurance coverage in this case, the Court also denied the carrier's motion to dismiss the alleged claims for statutory and common law "insurer bad faith."  See JGB, 2020 WL 7190023, at *4.  This holding aligns with the majority of United States decisions on this issue, namely, that bad faith depends on coverage.

To say again, as was said here before:  The pandemic has revealed many things.  Who knew that interpreting insurance policies would be among the things revealed?

More of these revelations will be explored in a forthcoming ABA Tort Trial & Insurance Practice Law Journal (Spring 2021) article by Dennis J. Wall titled, "Remedies in Business Litigation:  Update on Business Income Losses in the Coronavirus Pandemic."

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

IMPLIED COVENANT NOT BREACHED UNDER CALIFORNIA AGREEMENT TO OBTAIN INSURANCE.

(Image by NASA)

And especially where the party did obtain the insurance.

In an unreported decision, a California District Court of Appeal affirmed a trial court's order dismissing an implied covenant claim.  Sartiaguda v. Ivy Bridge Grp. (West Coast), Inc., No. B294402, 2020 WL 7488140 (Cal. 2d DCA, Div. 5, December 21, 2020) (stated unofficially reported and may not be cited in California Courts).

           The DCA refused to recognize a cause of action for alleged breach of the implied covenant of good faith and fair dealing in this case.  The case was brought by a person who took in a student under a program sponsored by the defendant.  The student's high heels allegedly harmed the plaintiff's hardwood floors.  The defendant was obligated to obtain liability insurance, and did so.

           However, the liability carrier denied coverage.  The carrier took the position that the student intentionally caused the damage.  The plaintiff did not contest the carrier's decision or reasons for the carrier's decision.

           Instead, the plaintiff sued the defendant which ran the program that provided both the student lodger, and a policy of liability insurance, as agreed.

           Under these facts, the appellate court affirmed the trial court's determination that there simply was no breach of the implied covenant under California law.  Sartiaguda, 2020 WL 7488140, at *3-*5.

           The attempt to extend the contours of an implied covenant breach to the defendant in this case ran afoul of the same issue that stands in the way of many implied-covenant-breach claims against insurance companies, which is that "where there is no coverage, there is no bad faith."

           Parenthetically, the student's mother offered the plaintiff $8,000.00 to repair the floors, but the plaintiff refused to take her money.  Sartiaguda, 2020 WL 7488140, at *2.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

INTERPRETING THE VIRUS EXCLUSION: "THINKING OUTSIDE THE BOX."

 

(LexisNexis)  In Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., No. 2:20-cv-265, 2020 WL 7249624 (E.D. Va. December 9, 2020), a Federal District Court denied State Farm's motion to dismiss a Business Interruption claim based on COVID-19 despite a Virus Exclusion.

The plaintiff-policyholder is a spa.  It bought an all-risk commercial property insurance policy from State Farm.   It made claims under that policy for Business Interruption losses both for the time when it voluntarily closed its doors for business, and through the time that followed Executive Orders which required it to close.  State Farm denied the claims based in part on the policy's Virus Exclusion.

The spa sued for coverage and alleged bad-faith damages.  State Farm filed its motion to dismiss.  The District Court's analysis was simple and basic analysis of coverage under an all-risk insurance policy.

The policyholder making a claim under an all-risk policy first has to establish coverage.  Here, that meant establishing that the claimed losses were caused by "accidental direct physical loss" to the property.

The Federal Court found that Virginia Courts have applied a "spectrum of accepted interpretations" of "direct physical loss" in the case law, and the Federal Court applied the interpretation most favorable to coverage in this case since the carrier had the opportunity to limit and define the phrase in the policy, but did not.

 "Based on the case law, the Court finds that it is plausible that a fortuitous 'direct physical loss' could mean that the property is uninhabitable, inaccessible, or dangerous to use because of intangible, or non-structural, sources."  Elegant, 2020 WL 7249624, at *10.

Coverage having been established -- or more accurately in the context of this case, a plausible claim to coverage having been established -- the next step of the analysis is whether coverage under the all-risks policy is excluded.  That brings us, as it brought the Court, to the Virus Exclusion at issue here.

The burden is on the all-risks carrier to show the applicability of an Exclusion.  In this case, the all-risks carrier did not meet its burden.  This was so even in the face of a more or less standard Virus Exclusion which a vast majority of Courts across the country have interpreted to exclude Business Interruption claims arising from COVID-19.

But not in this case.  The Court in this case was not intimidated by reports of a majority view of Virus Exclusions. 

The Court's approach is a lesson in coverage interpretation and not just for interpretation of all-risks policies.  Here, the Court thought "outside the box," and counsel for policyholders and counsel for insurance companies alike would do well to take notice.

The facts alleged in the policyholder's complaint did not depend on a virus.  The policyholder did not allege either that COVID-19 was present at the spa or that COVID-19 was the direct cause of physical loss to Covered Property.  See Elegant, 2020 WL 7249624, at *13.  In basic and simple terms, the plaintiff's claim to coverage was based on alleged losses due to a threat risk, and not a virus.

Next, the Court turned its attention to the language in the all-risks policy at issue.  Interpretation of an insurance policy is a legal issue.  The Court held that, as a matter of law, the Virus Exclusion at bar "applies where a virus has spread throughout the property."  Elegant, 2020 WL 7249624, at *12.  Therefore the Virus Exclusion at bar does not apply to the facts alleged in this particular case.  To put it another way, the all-risks carrier failed to meet its burden to show that the Virus Exclusion applies to the spa's Business Interruption claims.  Elegant, 2020 WL 7249624, at *13.

Coverage was plausibly alleged, sufficiently enough to withstand the carrier's motion to dismiss based on its Virus Exclusion.  In accordance with the majority of jurisdictions in the United States, the Court also denied the carrier's motion to dismiss the policyholder's bad-faith claim, which the carrier had urged should be dismissed because there was no coverage.  However, as noted, the Court held to the contrary at this stage of the case.  Therefore, coverage having been plausibly alleged, the carrier's argument for dismissal of the bad-faith claim was politely but firmly rejected.  Elegant, 2020 WL 7249624, at *14.

To say again what was said here as recently as December 17, 2020, "The pandemic has revealed many things.  Who knew that interpreting insurance policies would be among the things revealed?"

More of these revelations will be explored in a forthcoming ABA Tort Trial & Insurance Practice Law Journal (Spring 2021) article by Dennis J. Wall, Remedies in Business Litigation:  Update on Business Income Losses in the Coronavirus Pandemic.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

THE PANDEMIC HAS REVEALED MANY THINGS. VIRUS EXCLUSION INTERPRETATION DISPLAYED.

(LexisNexis)

In Franklin EWC, Inc. v. Hartford Fin. Serv's Grp., Inc., No. 20-cv-04434-JSC, 2020 WL 7342687 (N.D. Cal. December 14, 2020) (Corley, USMJ), a U.S. Magistrate Judge found that Sentinel Insurance Company's attempt to add a "virus exclusion" to its Business Owner's policy was legitimate, that the language of the virus exclusion was unambiguous and so it should be applied in that case to exclude coverage for a Business Interruption claim.

None of the parties or their lawyers appear to have raised the issue of the insurance carrier's placement of the exclusion in that policy.  The record in the case is on display in PACER.  Volumes are revealed by reading the policy itself as in any case and in this case, by reading the policy on PACER.

By its own terms, the insurance policy at issue in that case added the purported virus exclusion "to Paragraph B.1. Exclusions of the Standard Property Coverage Form," in pertinent part.  Franklin EWC, Inc. v. Hartford Financial Services Group, Inc., Dkt. No. 10-1 at p. 127 (N.D. Cal. Case No. 20-cv-04434-JSC).

The carrier added the virus exclusion with its own chosen label of Exclusion "i".

However, there already was an Exclusion i in the policy, a Pollution Exclusion.  Franklin EWC, Inc. v. Hartford Financial Services Group, Inc., Dkt. No. 10-1 at pp. 47-48 (N.D. Cal. Case No. 20-cv-04434-JSC).

The Magistrate did not mention this, whether or not the parties and their lawyers ever mentioned it in this coverage case.

The identical policy language and policy arrangement were at issue in Urogynecology Specialist of Fla., LLC v. Sentinel Ins. Co., No. 6:20-cv-1174-Orl-22EJK, 2020 WL 5939172 (M.D. Fla. Sept. 24, 2020). 

There, among other things in her opinion in that case, the District Judge pointed out that it appears to be ambiguous, that it does not seem logical, to classify a virus as a pollutant.  By labelling the attempted Virus Exclusion as Exclusion i in an endorsement to the main policy, the carrier in that case was apparently writing an insurance policy that would exclude damage caused by the virus as damage caused by pollutants described in Exclusion i in the Coverage Form.  See Urogynecology Specialist of Fla., LLC v. Sentinel Insurance Co., 2020 WL 5939172, at *4.

The arrangement of the policy forms and specifically the identification of the new "virus exclusion" with the policy's Pollution Exclusion gives rise to ambiguity.  And it is axiomatic, as they say, that ambiguous insurance policies are construed against the insurance companies which drafted them in the first place.

Such was the case for several reasons in Urogynecology Specialist of Fla., LLC v. Sentinel Insurance Co.

More was the case in Urogynecology Specialist of Fla., LLC v. Sentinel Insurance Co., as well.  The Court carefully pointed out in that case, that its interpretation of insurance coverage for losses caused in a pandemic was itself taking place in a pandemic:

Importantly, none of the cases dealt with the unique circumstances of the effect COVID-19 has had on our society—a distinction this Court considers significant. Thus, without any binding case law on the issue of the effects of COVID-19 on insurance contracts virus exclusions, this Court finds that Plaintiff has stated a plausible claim at this juncture. Plaintiff alleged the existence of the insurance contract, losses which may be covered under the insurance contract, and Sentinel’s failure to pay for the losses. These allegations, when read in the light most favorable to Plaintiff, are facially plausible.

Urogynecology Specialist, 2020 WL 5939172, at *4.

The Magistrate in the Northern District of California did not mention the context of her policy interpretation, she just applied what she and apparently the lawyers in the case saw as the majority view, and that ended the matter for them.

The pandemic has revealed many things.  Who knew that interpreting insurance policies would be among the things revealed?

More of these revelations will be explored in a forthcoming ABA Tort Trial & Insurance Practice Law Journal (Spring 2021) article by Dennis J. Wall, Remedies in Business Litigation:  Update on Business Income Losses in the Coronavirus Pandemic.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

MAJORITY WINNER RECOGNIZED ON ISSUE OF POST-LOSS ASSIGNMENT ...

... OF PROPERTY INSURANCE COVERAGE CLAIM.

(Matt Whittaker / New York Times)

In Johnson v. CSAA Gen. Ins. Co., No. 118689, 2020 WL 7349186 (Okla. December 15, 2020) (stated not released for official publication at this time),  the Oklahoma Supreme Court recognized that a majority of Courts addressing the issue has held that an insured's post-loss assignment of its property insurance coverage claim to a contractor is valid.  The Supreme Court held in this case that such a post-loss assignment is the permissible assignment of a chose in action, and not an impermissible assignment of the policy.

    The Oklahoma Supreme Court's framing and resolution of this issue is so well-stated that no attempt to summarize it can improve it.  Here is how the Supreme Court stated the matter:

    This case involves an insured assigning a post-loss property insurance claim to a construction company for the purpose of the company repairing her property after a storm. Insurer argued the insured property owner was required to obtain written consent from the insurer prior to making the assignment. We agree with a majority of courts stating an insured's post-loss assignment of a property insurance claim is an assignment of a chose in action and not an assignment of the insured's policy. We hold insured's assignment was not prohibited by either the insurance policy or 36 O.S. § 3624. We conclude the District Court's judgment was erroneous when it dismissed the construction company as a party because written consent for the assignment was not provided by insurer to the insured. We reverse the judgment of the District Court and remand for further proceedings. The insurer's motion to dismiss the appeal is denied.

Johnson, 2020 WL 7349186, at p. *1, ¶ 1.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

FILED RATE DOCTRINE AT WORK IN A SLIGHTLY FRACTURED COURT.

(Algae Bloom in Lake Sinclair. Image by NASA)

In State ex rel. Util. Comm'n v. Stein, ___ S.E.2d ___, Nos. 271A18 & 401A18, 2020 WL 7294770 (N.C. December 11, 2020), a somewhat fractured North Carolina Supreme Court faced a filed-rate decision from a North Carolina State administrative agency, the Utilities Commission.  The utilities' rate filing involved unlined storage pits of coal ash.

In particular, the decision of the North Carolina agency concerned passing on the costs of "engineering and regulatory compliance," i.e., cleanup.

The ultimate decision was largely to affirm the decisions of the North Carolina Utilities Commission.  Putting the merits of the administrative and judicial decisions to one side, it is the several opinions of the majority, and of the justices who dissented in part and concurred in part, that draw attention.  These judicial opinions illustrate the working of the filed rate process in State administrative agencies and in State Courts, a procedure which is always tied to the evidence in the record.

This stands in some contrast to the acceptance without the requirement of any evidence to support the distinct but dependent federal "filed rate doctrine" in many federal courts.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

EXPERT ADJUSTER TESTIMONY IN BAD FAITH CASE ALLOWED.

(Brennan Linsley / Associated Press)

The insurance bad faith case of Daniels v. Scottsdale Ins. Co., No. 19-10632, 2020 WL 7183363 (E.D. La. December 7, 2020), arose out of a mortgage foreclosure.

The plaintiffs in the bad-faith case were the plaintiffs in the foreclosure case. Fixtures on the property they foreclosed on were damaged.  After the insurance company investigated the resulting claim for losses, it issued a check payable to the plaintiffs as mortgagees and loss payees and, in accordance with the Commercial Lines policy involved in the matter, also made the owner a payee on the check.

The mortgagees thought that the owner, an entity called Kai Pond, was responsible for the damage.  The mortgagees even had the peril of property damage by Kai Pond made an explicit risk assumed under the policy.

It is not stated in the opinion, but apparently the check was negotiated.  In any event, the plaintiffs were not happy with the amount they received from the insurance company's payment.  The plaintiffs sued various defendants, among them the insurance company which they sued for alleged breach of contract and bad faith.

The issue at hand was whether the damage was "caused by others" within the meaning of the policy.  As the Court explained it, the issue was not whether the property owner could be one of the "others," but in basic terms the issue was instead whether the damage was caused by perils other than various natural forces which do not involve human action.

The plaintiffs produced an expert witness report by one Kotter.  Mr. Kotter's proffered expertise was in insurance adjusting.  The defendants challenged Kotter's opinions as totally inadmissible; they did not challenge Kotter's capacity to testify as an expert insurance adjuster.

A federal judge allowed the opinions in Mr. Kotter's report that the defendants found offensive, and declined to strike his report or to declare his testimony as an expert inadmissible on these points.   However, the Court went on to grant the motion as to a part of the Kotter report and some of the Kotter opinions:

    Scottsdale does not argue that Kotter is unqualified to testify as an expert insurance adjustor. Rather, Scottsdale argues that Kotter's vague statement that the damage was “caused by others” is unhelpful to determining the actual cause of the damage and that his opinions are based on unreliable evidence. After reviewing the record and Kotter's report, the Court finds that Kotter's report is reliable and relevant to the extent of most of the limited opinions it contains. Kotter's opinion that the damage was caused by others is helpful in that it excludes perils not caused by “human interaction” including fire, water, or natural disaster. Kotter also includes a cost estimate of the allegedly damaged or lost items which could be helpful to the trier of fact. Any issues Scottsdale has with these limited opinions can be addressed through cross-examination and the presentation of countervailing expert testimony. However, Kotter's report also includes an opinion that there was a “gross underpayment of the claim” that “resulted in Plaintiffs incurring the cost of litigation.” These statements are impermissible legal conclusions or factual determinations reserved for the trier of fact, which Kotter will not be permitted to offer at trial.

Daniels, 2020 WL 7183363, at *4.

This ruling is in line with the vast majority of rulings on expert witnesses and their opinion testimony in federal courts.  Most expert opinions are admissible, depending on what is in the record and what in the record the expert reviewed.  However, even the record will not permit an expert to testify to legal conclusions in the case or, as the judge ruled in this case, to "factual determinations reserved for the trier of fact[.]"

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

"WHERE'S THE BEEF?" WHERE'S THE PUBLIC IN THIS?

(Florida Department of Agriculture and Consumer Services)

"Plaintiff David DeHate filed his complaint on October 18, 2019, alleging claims for negligence and premises liability arising from an incident at defendant's store in Hemet, California, in which a former employee of defendant allegedly dropped a pallet of flooring material on plaintiff's foot."  DeHate v. Lowe's Home Ctrs., LLC, No. ED CV 19-2505-JGB (SPx), 2020 WL 7084551 (C.D. Cal. Oct. 8, 2020) (USMJ).

Plaintiff filed suit against Lowe's for alleged negligence and premises liability, and Lowe's removed the case to federal court.  In light of subsequent rulings, certainly, this was a good tactical move.

Lowe's had a surveillance video which showed the accident apparently.  From the beginning of the suit, DeHate asked Lowe's to give him the surveillance video and documents related to the accident.  Likewise, once the lawsuit was removed to federal court, Lowe's never stopped asking for a stipulated protective order that would limit use of the surveillance and any of the documents to DeHate's use in this lawsuit only.

Ultimately, Mr. DeHate's lawyer verbally agreed to limit use of the material to the current lawsuit only.  This was not good enough for Lowe's, which understandably wanted the agreement committed to writing.  Lowe's filed a motion for a protective order, there being no stipulated protective order.

Viewing the surveillance tape would reveal the location of the cameras in the Lowe's store.  If that information was released to third parties outside the lawsuit, the world would know, essentially, where the cameras were hidden in that store.  "Shoplifters beware," was basically Lowe's cry about the surveillance tape.  The Magistrate heard the cry, looked at the record in this case, and granted the motion for protective order regarding the surveillance video.  See DeHate, 2020 WL 7084551, at *3.

The documents in question reflect Lowe's surveillance practices and procedures so they too were ruled protected here.    DeHate, 2020 WL 7084551, at *3.

These rulings came without discussion of any public interest in access to these materials.  Perhaps the public had no interest given the nature of the materials, but perhaps it did.  We do not know because there was no discussion in the Magistrate's opinion.  Consideration at least of the public's interest in access to judicial proceedings seems to be a requirement in the Ninth Circuit where the Central District of California -- in which these rulings were made -- is located of course.

If Lowe's asked for a protective order, it had to show the Court what it wanted the Magistrate to protect.  To protect those materials from public view, Lowe's would ordinarily have had to request that they be sealed before Lowe's filed them with its motion for a protective order.  Yet there is no mention of this in the opinion.

Further, Ninth Circuit case law apparently would treat the motion in this case as a "non-dispositive motion" but would still require the moving party to show "good cause" for the secrecy.  Lowe's may have satisfied this standard; certainly this Magistrate was satisfied with two declarations which Lowe's filed in support of its motion.  One declaration was from the store manager; the other declaration was from the lawyer for Lowe's.  See DeHate, 2020 WL 7084551, at *1-*4.  But if Lowe's satisfied the "good faith" standard, we do not know because this Magistrate did not address the question.

We only know that the Magistrate said that her rulings were good for the parties.  She balanced DeHate's and Lowe's' interests here.  DeHate, 2020 WL 7084551, at *4.  That is as far as she went, however.  Her rulings were like a return to the "before time," when publicly funded litigation was viewed strictly as the private preserve of private parties.

She did not put the public's interest on her scales and balance the public's interest in accessing any of the materials, however.   The public's interest in access to judicial proceedings is guaranteed by the Constitution and by the common law in most American jurisdictions.  As a result, that interest is not lightly ignored.

The point is not that this Magistrate's discovery rulings were wrong.  She may have been right ultimately.  But the point is greater than that:  Because she did not tell us where the public came in, we will not know whether and what role the public right of access may play here, will never know how the interests of the public may affect disclosure of any of the materials at issue in this discrete case.  That seems to be why the Ninth Circuit has shaped procedures for judges and magistrates to follow in all cases.

That the Magistrate did not follow them in this case is a loss for the Court system and for the public, which pays for that system.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

DISCLOSING YOUR HORSE BARN REQUIRED NONDISCLOSURE AGREEMENTS, NO CONFIDENTIAL BREACH.

(Photo via Wikipedia)

In an unpublished opinion in Barron v. Great Am. Assur. Co., 2020 IL App (1st) 182353-U, Nos. 1-18-23531-19-0656 cons., 2020 WL  7121448 (Ill. 4th DCA December 4, 2020), an Illinois appellate court upheld a trial court's orders dismissing the plaintiff's case and refusing to reconsider the ruling.

The plaintiff sued Great American over the conduct of the carrier's employees relative to the plaintiff's equine insurance policy.  Ms. Barron boarded a horse, and received other equine services, at a stable.  While the horse was at the stable, it suffered from multiple fractures of one of its legs and the horse was euthanized.

For some reason which does not specifically appear in the appellate opinion, and is perhaps vague in plaintiff's complaint, she allegedly gave the carrier confidential information.

The confidential information in question allegedly included her disclosure of the fact that the stable required nondisclosure agreements from its employees.  Barron, 2020 WL 7121448, at *2, ¶ 10.

The plaintiff apparently gave the carrier this information before she sued the stable and the stable's owner.  After that suit, she sued the carrier alleging breach of contract, bad faith due to improper claims handling prohibited by various Illinois statutes, breach of the implied covenant of good faith and fair dealing, and breach of an Illinois statute by virtue of the carrier's alleged disclosure of alleged confidential and privileged information, among other alleged causes of action.

As noted the appellate court affirmed the trial court's dismissal of these claims and also affirmed the trial court's refusal to reconsider.  In a somewhat lengthy opinion that covers some 11 pages of the Westlaw report, the appellate court pointed out in basic and simple terms that the plaintiff's allegations and claims were not specific enough to withstand the carrier's motion to dismiss.

Specifically with regard to the claim alleged for breach of confidential and privileged information in violation of an Illinois statute, the appellate court point out that the statute in question does not apply to equine insurance which, again as noted, was the type of insurance involved in this case.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

 

WILDFIRE LOSS, COVERAGE DENIED: NO CONTRACT BREACH, NO BAD FAITH.

(Jose Carlos Fajardo / San Jose Mercury News, Associated Press)

In Jackquart v. State Auto Prop. & Cas. Ins. Co., No. 19-cv-2480-WJM-KMT,  2020 WL 7055500 (D. Colo. December 2, 2020), the Court was faced with a claim of losses from a wildfire.

The losses came from the destruction of a structure away from the "residence premises" identified in the homeowner's policy at issue.  In fact, the evidence reflected that the uses made by the policyholders of this structure -- which was located 119 miles away from their covered home -- were not consistent with the use of a covered structure away from the residence premises "in connection with the residence premises," in pertinent part:

    Apart from Plaintiffs’ ownership of both properties, Plaintiffs have not established that there is a credible link, relationship, or association between the Primary Residence and the La Veta Property. In addition to being located 119 miles away from the Primary Residence (see ECF No. 46-3), Plaintiffs’ use and enjoyment of the La Veta Property as a getaway was distinct from their use of the Primary Residence.

Jackquart, 2020 WL 7055500, at *5. 

Further, Mr. Jackquart testified that the structure was "investment property that the Plaintiffs planned to sell at the time of the fire."  Even further still, at the time of the fire they had a contract to sell it.  Jackquart, 2020 WL 7055500, at *6.

On this record, the Court granted the homeowners carrier's motion for summary judgment that there was no insurance coverage under the policy at issue and so there was no breach of contract when the carrier denied coverage.  Since there was no insurance coverage, it followed under Colorado law as under the law of the vast majority of jurisdictions in the United States, that there was no bad faith.  Accordingly, the Court also granted the carrier's motion for summary judgment on the bad faith claim in that case.

The holdings of Courts across the United States that where there is no insurance coverage, there is no bad faith, are addressed in 1 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 3:28 (third-party cases) (Thomson Reuters West 3d ed. & 2020 Supps);  and in id., Volume 2, §§ 9:1 & 9:14 (first-party cases).

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.  

SAYIN' DON'T MAKE IT SO: "CONFIDENTIAL" DESIGNATIONS v. PUBLIC RIGHTS.

(Image by NASA)

The recent decision in Plexxikon Inc. v. Novartis Pharm's Corp., No. 17-cv-04405-HSG, 2020 WL 7027432 (N.D. Cal. November 30, 2020), explores what seems to be all the necessary issues that surround getting a Federal Court to seal a document in a case in the Ninth Circuit and perhaps the nation.

First, there is the question of the American public's right of access to documents filed in court cases.  If the document is part of a filing submitted to a Court when asking the Court for a ruling, then the document is presumptively accessible to the public and it cannot be sealed without a showing of "extraordinary circumstances."  Plexxikon Inc., 2020 WL 7027432, at *1.

In contrast, if the document is not part of a filing designed to elicit a dispositive ruling from the Court, i.e., if it is attached to "a non-dispositive motion," then the party seeking to seal it must instead show "good cause" to seal it.  The showing of "good cause" to seal is a "particularized showing" of specific harm or prejudice that would happen to the party seeking to seal a document if the document is not sealed.  Plexxikon Inc., 2020 WL 7027432, at *2.

In either situation, the party asking a judge to seal a document must do more than say that it is "confidential" or "highly confidential" just because a stipulated protective order allows that party to say those words.  In the view of the federal judge in this case, that is all that the party did when it asked the Court to allow it to file a second motion for summary judgment, asked the Court to seal attachments to its motion requesting leave, and also asked the Court to seal the party's objections to a Magistrate's Recommendation against sealing.  Plexxikon Inc., 2020 WL 7027432, at *2-*3.

Saying that the documents were "highly confidential" did not make them so, the Court ruled in effect.

The sealing motions were denied even applying the lower standard of "good cause" in this case.  Plexxikon Inc., 2020 WL 7027432, at *3.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

THE CASE OF THE STOLEN GIFT CARD INFORMATION.

(Photo by the author)

The case of Maritz Holdings Inc. v. Certain Underwriters at Lloyd's London, No. 4:18-CV-00825 SEP, 2020 WL 7023952 (E.D. Mo. Nov. 30, 2020), came about in this way.  Maritz allegedly experienced cyber-security breaches.  At this time of the year in particular, gift cards are on our minds.  In the Maritz case, the cyber-security breaches endured by Maritz occurred because of gift cards.

Gift card information was allegedly stolen from Maritz.  It claimed coverage under insurance policies issued by Lloyds of London.  "Underwriters issued breach-response insurance coverage to Maritz[.]"  Maritz, 2020 WL 7023952, at *1.

Underwriters filed a motion to dismiss directed to Maritz's claim that the Underwriters' refusal to pay was vexatious and so actionable under Missouri "bad-faith" or vexatious refusal statute.  (Maritz also asked the Court to treat its motion as a motion for judgment on the pleadings.  The Court said the same standard would apply to measure the motion.)  In pertinent part, Underwriters argued that the vexatious-refusal-to-pay claim brought under the Statutes of Missouri should be dismissed because a choice-of-laws provision in the insurance policy required New York law to apply here, not Missouri law.

The Court disagreed with Underwriter and agreed with Maritz in this regard, that Missouri public policy mandates that Missouri law be applied when the protection of Missouri citizens is at stake:

 Maritz argues that an insurer should not be allowed to achieve that same end via a choice-of-law provision that works to strip Missouri insureds of the protections afforded by the vexatious refusal statute. The Court agrees.

Maritz, 2020 WL 7023952, at *3.

After announcing the public policy of Missouri, the Court upheld Maritz's vexatious refusal claim and denied Underwriters' motion to dismiss. 

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.