Claims and Bad Faith Law Blog

NO "DIRECT PHYSICAL LOSS," NO "DAMAGE TO," NO BAD FAITH.

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The reach of holdings that demonstrable physical injury be proven in order to trigger property insurance policy coverage under policies which require "direct physical loss of or damage to" property, is illustrated by the holding in EMOI Serv's, L.L.C. v. Owners Ins. Co., ___ N.E.3d ___, No. 2021-1529, 2022 WL 17905839 (Ohio Dec. 27, 2022) (stated "PRELIMINARY COPY, SUBJECT TO FURTHER EDITING").

In EMOI Services , the issue was whether "a businessowners insurance policy issued by appellant, Owners Insurance Co. ('Owners'), and held by appellee, EMOI Services, LLC ('EMOI'), covers losses that resulted from a ransomware attack on EMOI's computer-software systems."  EMOI Services, 2022 WL 17905839, ¶ 1, at *1.  The issue was so clear in the eyes of the Ohio Supreme Court that no trial would be required.

The businessowners insurance policy at issue conditioned coverage on a “direct physical loss of or damage to” the property in question in the loss, in this case, the software.  As there was no demonstrated direct physical loss of or damage to software as a result of a ransomware attack on EMOI, "Owners is not responsible for covering the resulting loss."  EMOI Services, 2022 WL 17905839, ¶ 1, at *1. 

The contrary intermediate appellate court decision was reversed and the trial court's entry of summary judgment was "reinstated" on EMOI's alleged claims for breach of contract and for insurer bad faith in Owner's denial of coverage.

 Please read the disclaimer.  ©2022 Dennis J. Wall.  All rights reserved.

SEALING THOSE SETTLEMENT AGREEMENTS, SO NO OUTSIDER KNOWS WHY, WHAT.

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There are a couple of threads being played out in the brief decision in Bertrand v. Jefferson Parish, No. 22-1618, 2022 WL 17814243 (E.D. La. Dec. 1, 2022).

One thread is that that litigating parties want to conceal the fact, amount, terms and conditions of their settlement agreements. They don't want other people to find out why they are settling, and for what, even if other people have the same reasons to sue that the plaintiffs in this case had.  See Bertrand v. Jefferson Parish, 2022 WL 17812423, at *1.

The twenty plaintiffs in this case were all employees of the Parish (county).  They filed their complaint alleging violations of the Fair Labor Standards Act (FLSA) in the aftermath of Hurricane Ida.  Bertrand v. Jefferson Parish, 2022 WL 17812423, at *1.

The plaintiffs-employees and their defendant employer jointly filed a motion to seal their settlement agreements.  Even though this was a Joint Motion, the Court denied this request.  Bertrand v. Jefferson Parish, 2022 WL 17812423, at *1.

There were two bases for the Court's short decision in this case.  One was the common law presumption of public access to Court files.  In this case, the settlement documents were filed in the Court file.  There was a resulting presumption that the documents would be available to the public.

The other basis for the Court's decision was the fact that in FLSA cases in particular, there is a strong presumption of keeping the settlement documents open and available to the public.  The parties can overcome the common law presumption of public access by offering "extraordinary reasons," but in this case the parties did not offer any.

The Court gave the parties an out, however:

For the reasons that follow, the Court DENIES the Motion to Seal and grants the parties fourteen (14) days to advise the Court whether they continue to request approval of the settlement, with the understanding that the settlement, if approved, will be approved by separate order, not under seal, and that the settlement agreements will be unsealed on the record.

Bertrand v. Jefferson Parish, 2022 WL 17812423, at *1.

Please read the disclaimer.  ©2022 Dennis J. Wall.  All rights reserved.

EXPERT OPINIONS ON CONTINGENCY DISQUALIFIED, BUT FACTS OBSERVED TESTIMONY ALLOWED.

 

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In Midtown Inv's, LP v. Auto-Owners Ins. Co., ___ F. Supp. 3d ___, No. 20-cv-01594-PAB-STV, 2022 WL 17039225 (D. Colo. Nov. 17, 2022), a public adjuster was disqualified from testifying to opinions as an expert concerning an alleged property loss in a commercial property insurance case.

The proffered expert was retained on a contingency basis, with his payment depending on the outcome of the case.  The District Judge concluded that the danger of unfair prejudice to the defendant insurance carrier substantially outweighed the probative value of this witness's testimony.  Midtown Investments, 2022 WL 17039225, at *8.

However, this same witness was allowed to testify in this bad faith case to facts he observed, namely, "events that transpired during the claim process and his own observations, but may not offer expert opinions."  Midtown Investments, 2022 WL 17039225, at *8.  The same was held true regarding this witness's familiarity with industry practices; his testimony would be limited to what he personally observed of the defendant carrier's conduct handling this claim.  Midtown Investments, 2022 WL 17039225, at *8.

Please read the disclaimer.  ©2022 Dennis J. Wall.  All rights reserved.

REASONABLE EXPECTATIONS DOCTRINE DOES NOT OVERRIDE INSURANCE POLICY.

The doctrine of reasonable expectations did not apply to provide insurance coverage for a Condominium Association suing after a City condemned its building, in Horizon W. Condo. Homes Ass'n v. Travelers Indem. Co. of CN, No. 22-C-0597, 2022 WL 17574860, at *5 (E.D. Wis. Nov. 16, 2022):

    As explained below, I conclude that the complaint’s allegations establish that policy exclusions that apply to losses caused by the enforcement of, or compliance with, any ordinance or law generally bar the plaintiffs’ claims for coverage. However, to the extent that these exclusions do not apply, the complaint makes clear that other exclusions—particularly those excluding damage caused by rust and corrosion and structural instability that does not result in an abrupt collapse—would separately bar the plaintiffs’ claims.

The Horizon West Court granted The Travelers' motion to dismiss with prejudice in this case.  This case and other significant cases concerning the reasonable expectations doctrine are explored in Section 7:2, Reasonable Expectations of Insured, by Dennis J. Wall, in JOHN K. DiMUGNO, STEVEN PLITT & DENNIS J. WALL, CATASTROPHE CLAIMS / Insurance Coverage For Natural and Man-Made Disasters (Thomson Reuters November 2022 edition).

Please read the disclaimer.  ©2022 Dennis J. Wall.  All rights reserved.

WHEN DEFENDANTS, NOT JUDGES, SAY WHO CAN SUE.

(Image by Donna Bruno.  ©Dennis J. Wall)

Many courts apply a narrow, restrictive version of third-party beneficiary law.  This branch of the law comes mostly from the States.

Many courts apply this law to hold that a homeowner cannot enforce payment of loss under a force-placed insurance policy even when the homeowner has put the carrier on notice, and even when the carrier has adjusted the claim.

These courts narrowly and restrictively say that an intended third-party beneficiary capable of enforcing the policy is only "intended" if the policy provides that payment is due to the homeowner under the policy.  Parenthetically, this holding means that a plaintiff can enforce payment under a contract when the contract says that she or he can enforce payment under the contract.  If it is that simple, why do the parties need a judge?

Such was the case in Haley v. Am. Sec. Ins. Co., No. 22-1728, 2022 WL 17281800 (E.D. La. Nov. 29, 2022).  Haley is a typical case, extreme but not an outlier.

John Haley and his wife, Cheryl, owned a home with a mortgage.  Cheryl died.  The lender's most recent assignee force-placed insurance premiums on John.  The premiums John Haley was forced to pay were premiums for a policy on which only the lender was a named insured.

The court in this case, like most courts in cases like this, did not even mention that  "Loss Payment" under  the policy was not limited to the lender's interest; however,  the amount of the payment was left strictly to the lender under the lender force-placed policy.  See Doc. 1-2, "American Security Insurance Company Residential Dwelling Certificate," Form MIP 223 AS (01-12 & 0212), ¶ 12 at 7 in the policy, at 12 in the Exhibit, in Haley v. Am. Sec. Ins. Co., E.D. La. No. 22-1728-NJB-MBN, filed June 13, 2022.  Like the rest of this policy, the Loss Payment provision in this case is typical.

John alleged that he put the carrier on notice in December and that the carrier adjusted the claim.  (There is no allegation mentioned in the opinion that the lender did anything.)  John thought that the carrier's amount "was unrealistic" and sued..

In August, ASIC filed its motion for summary judgment that John Haley could not enforce the insurance policy that insured loss on John Haley's house.  With two days left in November, nearly a year after John Haley allegedly reported the loss, a federal judge entered summary judgment in ASIC"s favor saying that the homeowner living in the house covered by ASIC's insurance policy could not enforce ASIC's policy because the homeowner was not an "intended" third-party beneficiary.

I said earlier that this is a narrow and restrictive version of third-party beneficiary law.  This version is extreme but it is common.  In order to change the law, these courts' view of what is and is not an "intended" third-party beneficiary needs to be the product of a realistic view of what is happening on the ground, so to speak, rather than what the force-placed insurance company which wrote the force-placed insurance policy says is an intended third-party beneficiary.

Please read the disclaimer.  □2022 Dennis J. Wall.  All rights reserved.