Claims and Bad Faith Law Blog

FORCE-PLACED PREMIUMS ARE NEVER DEAD. THEY AREN'T EVEN PAST: II.

CONTINUED FROM A PREVIOUS ARTICLE POSTED HERE.  You can read more about it in 2 Dennis J. Wall, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 9:35, titled "Force-Placed Insurance:  The Most Frequently Alleged Claims and Causes of Action, Including Alleged Bad Faith" (3d Edition Thomson Reuters 2020 Supplements).

(©2020 Dennis J. Wall.  All Rights Reserved)

In New Jersey,

[t]o show a breach of the covenant of good faith and fair dealing, a plaintiff must show “(1) the defendant act[ed] in bad faith or with a malicious motive, (2) to deny the plaintiff some benefit of the bargain originally intended by the parties, even if that benefit was not an express provision of the contract.”  [Citation omitted.]  Proof of a party’s “bad motive” or “intention” must support a claim of breach of contract grounded on an alleged breach of the implied covenant of good faith and fair dealing.[1]

    In this case, the federal judge held that the plaintiffs adequately alleged a breach of the good faith covenant that was implied in their loan agreement as to those unauthorized charges that were not excluded by the statute of limitations:

... Plaintiffs sufficiently allege bad faith because they state that the Defendant knowingly charged them for three fees outside the express terms of the contract. (Compl. at ¶¶ 21–22.) Defendant did so intentionally and therefore acted “in bad faith, dishonestly, or with improper motive” and “destroy[ed] or injure[d] the right of the [Plaintiffs] to receive the benefits or reasonable expectations of the contract.” (Id. at ¶ 129). Taking all inferences in the Plaintiffs’ favor, Plaintiffs were denied the benefit of their bargain because they contracted to pay for only those fees permitted by the agreement, not any others. (Id.)[2]

 

[1] Zirbser v. Wells Fargo Bank, N.A., No.:  19-cv-01099-RBK-KMW, 2019 WL 3244621, at *4 (D.N.J. July 19, 2019).

[2] Zirbser v. Wells Fargo Bank, 2019 WL 3244621, at *4.

 

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FORCE-PLACED PREMIUMS ARE NEVER DEAD. THEY AREN'T EVEN PAST.

You are about to read the short story of Ms. Dolores Zirbser and Mr. Bruce Jon Spalla.  Maybe it's not so short a story here at that.  Their story will be continued in a concluding article that will be posted here on Thursday, August 20, 2020.

You can read more about them in 2 Dennis J. Wall, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 9:35, titled "Force-Placed Insurance:  The Most Frequently Alleged Claims and Causes of Action, Including Alleged Bad Faith" (3d Edition Thomson Reuters 2020 Supplements).

(©Dennis J. Wall.  All Rights Reserved.)

 

Ms. Zirbser and Mr. Spalia took out a home equity line of credit or HELOC.  They made their loan agreement when they took out their loan with Wachovia Bank.

    In the way of modern mortgages, Wachovia sold the loan to Wells Fargo.

    Zirbser and Spalla sued Wells Fargo for allegedly over billing them for allegedly "erroneous fees" and taking other payments that were not authorized by the loan contract.  In case anyone thinks that force-placed insurance premiums are a thing of the past, specifically a creature unique to the Great Recession in 2008-2009, their lawsuit was filed in December, 2018.

    Wells successfully argued for dismissal of five of the six counts of the complaint on the basis of the statute of limitations, i.e., that the allegedly "illegal charges" were time-barred because they took place too long ago to sue on now.

    Except for three charges that were within the time to sue on them.  The federal judge denied Wells's motion to dismiss the last remaining count for alleged breach of the implied covenant of good faith and fair dealing under New Jersey law.

TO BE CONTINUED ....

 

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"Injury in Fact" Under the Pennsylvania Bad Faith Statute?

There may be a conflict brewing in the Eastern District of Pennsylvania.

           It is subtle.  It is quiet.  But it seems real.

           In one case, a federal district judge in the Eastern District of Pennsylvania held that a claim under the Pennsylvania bad faith statute survived a motion to dismiss, even though the statutory claim in that case was based on allegations that went far beyond the niche of alleged 'insurance claims handling' that the Pennsylvania statute seems to address:

    This insurance coverage dispute arises out of the “collapse of the housing market” in 2008. (Compl. ¶ 4.)

* * *

    In its 37-page Complaint, Nationstar alleges that Radian denied, rescinded and curtailed coverage and refused to reimburse overpayments for 5,246 mortgages under Radian's pool, bulk and flow policies.

* * *

    Nationstar contends that Radian acted in bad faith when it denied, rescinded, and curtailed coverage for valid claims and refused to reimburse Nationstar for premium overpayments. (Compl. ¶ 120.) Nationstar alleges that Radian knew and understood that if it wrongfully rescinded, denied and/or curtailed claims that third parties would seek to have Nationstar repurchase these loans. (Id. at ¶ 113). Moreover, Nationstar's Complaint is replete with allegations arguing that Radian lacked a reasonable basis for its coverage decisions. See (id. at ¶¶ 54, 65, 69, 72, 113, 114).

    Accepting the factual allegations as true, Nationstar has adequately plead both requirements to show bad faith under 42 Pa. Cons. Stat. § 8371.

Nationstar Mort. LLC v. Radian Guar. Inc., No. 18-03798, 2019 WL 1318541, at *1, *2, and *6 (E.D. Pa. March 22, 2019).

    In another case, decided nearly five months after Nationstar Mortgage, the Court quoted from the earlier case and cited to it in a footnote.   The claim in that case was also based on the Pennsylvania bad faith statute, 42 Pa. Cons. Stat. § 8371.

    In the later case, a different federal district judge in the Eastern District of Pennsylvania seems to have reached a different and succinct conclusion from the judge who ruled on the motion to dismiss the statutory bad faith claim in the Nationstar Mortgage case:  "We cannot recognize a bad faith claim for actions unrelated to the handling or denial of benefits."  Boring v. State Farm Fire & Cas. Co., No. 19-1833, 2019 WL 3774191, at *6 (E.D. Pa. August 9, 2019). 

    The separate holdings in these two cases seem to stand apart.  On the facts alleged in the two cases, the rulings appear to conflict on their face.  Whether the judges of the Eastern District are actually in conflict will be determined in Pennsylvania, if at all.

The Nationstar Mortgage and Boring cases are discussed along with many other first-party insurance cases addressing "Injury in Fact":  What Happens to Bad Faith Statutes?, in 2 Dennis J. Wall, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 9:14.50 (3d Edition Thomson Reuters and 2020 Supplements.  "Injury in Fact" issues affecting Bad Faith Statutes in third-party cases are discussed in 1 id., § 3:28.50, which is republished on the Works page at  https://www.dennisjwall.com.

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

THE QUESTION OF BAD FAITH: WHERE IS THE FAULT?

Courts have held that extracontractual liability (meaning in essence liability beyond the usual contract damages) can exist in first-party insurance cases even when an appraisal was timely paid, for example, but the claim itself was not timely paid.   The Texas Supreme Court announced that holding when it addressed the question of liability under the Texas Prompt Payment of Claims Act in the case of  Barbara Technologies Corp. v. State Farm Lloyds, 589 S.W. 3d 806, 816-19 (Tex. 2019).

The question of bad faith and how it depends on the presence or absence of fault is the subject of § 9:5, in 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith (3d Edition Thomson Reuters West and 2020 Supplements).   

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NO COVERAGE, NO BAD FAITH.

To state it simply, it is almost universally held in the United States that where there is no insurance coverage, there is no bad faith.  See, e.g., Mounier v. RLI Corp., No. CV-19-01778-PHX-GMS, 2020 WL 263597, at *3 (D. Ariz. January 17, 2020).  This is the prevailing rule even in cases of alleged statutory bad faith under third-party or liability insurance policies, see in addition the hundreds of authorities discussed in 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH, § 3:28 (Thomson Reuters West 3d Edition & 2020 Supplements); or at common law or under various statutory causes of action alleged in first-party insurance cases, 2 id., § 9:3, titled The Question of Bad Faith (where the Mounier case is among those discussed), and § 9:14, titled Express Statutory Causes of Action.

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

This new article is drawn from research for the manuscript of the 2020 Supplement of LITIGATION AND PREVENTION OF INSURER BAD FAITH, which I am writing right now:

In 2019, the Reporters on the Restatement of the Law of Liability Insurance Reporters wrote that the majority view now rejects vicarious bad-faith liability of liability insurance companies for the professional malpractice of the defense counsel they provide to their insureds. See RESTATEMENT OF THE LAW OF LIABILITY INSURANCE § 12 & cmt. d (2019).

    The Tenth Circuit Court of Appeals echoed this view in 2020, based on the Reporters' Comment in 2019. The Tenth Circuit pointed out that Kansas law already follows this rule. The federal appellate court accordingly affirmed the trial court's summary judgment under Kansas law on a claim of vicarious bad-faith liability for the conduct of the insured's defense counsel in this case.

    The Tenth Circuit panel predicted that the Kansas Supreme Court will apply the following test which the appellate panel read in the Restatement, "[b]ecause of the soundness of the common rejection of an insurer's general vicarious liability for negligent representation by the insured's attorney":

An insurer is subject to liability for the harm caused by the negligent act or omission of counsel provided by the insurer to defend a legal action when the insurer directs the conduct of the counsel with respect to the negligent act or omission in a manner that overrides the duty of the counsel to exercise independent professional judgment.

Progressive Northwestern Ins. Co. v. Gant, ___ F.3d ___, No. 18-3226, 2020 WL 2078282, at *9 (10th Cir. April 30, 2020), quoting RESTATEMENT OF THE LAW OF LIABILITY INSURANCE § 12(2) (2019) (emphasis by the Tenth Circuit).

    In a shorter version of the appropriate test in Kansas, the Tenth Circuit panel wrote and applied the following test: "But the test for vicarious liability in this context is not the right to control, but the exercise of control." Gant, 2020 WL 2078282, at *10 (emphasis added).

    Query for the defense: How much of this is about vicarious liability?

See generally Dennis J. Wall, § 3:71, Requirements for fulfillment or enforcement of good faith duty: Conduct of defense--Negligence of trial counsel, in Volume 1 of LITIGATION AND PREVENTION OF INSURER BAD FAITH (Thomson Reuters West 3d ed., 2020 Supplements in process).

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

WELLS FARGO WON THE PUNITIVE DAMAGES BATTLE, BUT LOST THE WAR.

In Dollen v. Wells Fargo Bank, N.A., ___ P.3d ___, No. A-1-CA-37194, 2020 WL 1699021 (N.M. Ct. App. April 6, 2020), the New Mexico Court of Appeals considered the standards for assessing punitive damages against Wells Fargo, a mortgage servicer in this case. The suit was also filed against an insurance carrier which had issued the deceased homeowner what the appellate court called a mortgage accidental death insurance policy, but the carrier was out of the suit by the time of this decision.

    The Court of Appeals set out the relevant factors, in pertinent part as follows:

    {19} The Due Process Clause of the Fourteenth Amendment entitles litigants to fair notice of conduct that may be punished by a state’s punitive damages system, and fair notice of severity of the penalty that a state may impose.

Dollen v. Wells Fargo, 2020 WL 1699021, ¶ 19, at *4.

    Accordingly, the Due Process Clause imposes certain constraints upon any assessment of punitive damages, according to the case law and to Standard Jury Instructions which are based on the case law:

    {20} One such constraint is the requirement of a reasonable relationship between the punitive damages award and the harm that was or could have been caused to the plaintiff(s). [Citations omitted.] Thus, New Mexico’s jury instructions with respect to punitive damages provide, in part, as follows:

Punitive damages are awarded for the limited purposes of punishment and to deter others from the commission of like offenses. The amount of punitive damages must be based on reason and justice taking into account all the circumstances, including the nature and enormity of the wrong and such aggravating and mitigating circumstances as may be shown. The property or wealth of the defendant is a legitimate factor for your consideration. The amount awarded, if any, must be reasonably related to the injury and to any damages given as compensation and not disproportionate to the circumstances.

UJI 13-1827 NMRA (emphasis added).

Dollen v. Wells Fargo, 2020 WL 1699021, ¶ 20, at *5.

    At that point, the punitive damages ball seemed to be rolling in Wells Fargo's direction in this case. And then it stopped. Wells argued too much by half, as it were, judging by the results. The New Mexico appellate court held that the punitive damages assessment against Wells should be remanded in spite of the evidence in the record that clearly established Wells' wrongdoing in servicing mortgages across the United States, according to the New Mexican judges in this case:

    {23} In arriving at its punitive damages figure, the district court in this case appears to have considered only avoiding an amount of punitive damages that might bankrupt Wells Fargo, rather than considering the amount that would accomplish but not exceed New Mexico’s goals of punishment and deterrence. [Citation omitted.] Because Wells Fargo raised no argument about its wealth, the district court assumed that “any amount it awards will not threaten Wells Fargo’s very existence.” This, coupled with the district court’s reference to findings that Wells Fargo services eight to nine million home loans in the United States, and systemically, remorselessly mishandles mortgage accounts for its own profit, indicates that the district court’s punitive damages award was aimed at deterring a national company with virtually unlimited assets from nationwide wrongdoing. This, again, violated Wells Fargo’s right to a process constrained by fair and permissible considerations, namely: punishment for harm to these Plaintiffs, and deterring only conduct in this state.

    {24} Accordingly, we reverse and remand the district court’s judgment on punitive damages, so that the court may reconsider its award within the constraints described hereinabove.

Dolan v. Wells Fargo, 2020 WL 1699021, ¶¶ 23-24, at *6 (italics in original; boldface added).

Constitutional, statutory, and common law standards for the assessment of Punitive Damages against insurance carriers in bad faith cases are analyzed at length in 2 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 13:15 (3d ed. Thomson Reuters West, 2020 Supplements in process).

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

LATEST ON FAIRLY OR REASONABLY DEBATABLE DEFENSE TO BAD FAITH.

The fairly or reasonably debatable defense to an insurance bad faith claim as generally applied across the United States was under the microscope in Hayes v. Acuity, No. CIV 17-5015-JLV, 2020 WL 1322269 (D.S.D. March 20, 2020).  The plaintiff's motion for partial summary judgment was granted in that case.  The Court ruled that on the record the defense was not available to the carrier, with a proviso that a jury question would be presented should the carrier change its position that it denied coverage for reasons other than a fairly or reasonably debatable defense.  The carrier's "actual intent remains a jury question consistent with this order."  Hayes, 2020 WL 1322269, at *9.

    Hayes involved a worker's compensation carrier.  Putting aside issues of immunity that arise in other jurisdictions,¹ this case addresses when the fairly or reasonably debatable defense applies to any carrier accused of bad faith.

    Hayes was a case in which the issue involved a question of law, i.e., the carrier's interpretation of statutes.  Hayes, 2020 WL 1322269, at *7.  In what would become only the first administrative hearing on the plaintiff's claim, the carrier answered the plaintiff's claim that the plaintiff's claim met the requirements of coverage.  Then the claim was dismissed without prejudice because the plaintiff and the carrier settled and stipulated to dismissal.  Hayes, 2020 WL 1322269, at *3.  

    Then came a second administrative hearing, in which the plaintiff filed a new claim that his circumstances changed and he met the requirements for additional coverage.  The carrier denied the claim.  The administrative agency ruled in the carrier's favor because it found that the injury was not covered in the first place.  The plaintiff appealed to the Circuit Court, which affirmed the administrative agency's decision.  Hayes, 2020 WL 1322269, at *3.  The plaintiff then appealed directly to the State Supreme Court.

    The Supreme Court reversed.  It held that the carrier's admission of coverage in the first administrative proceeding was a judicial estoppel that there was coverage in the first place.  The Supreme Court held that judicial estoppel prevented the carrier from contending later that there was no coverage.  Hayes, 2020 WL 1322269, at *4. 

    The plaintiff then sued the carrier for insurer bad faith, among other things.  The plaintiff made several arguments in the bad faith case.  One was derived from the Supreme Court's finding of judicial estoppel in the underlying case:

    The plaintiff's provocative argument based on judicial estoppel in this particular case is worth reading in its own right:

    A “fairly debatable” showing is not made by the fact that a party convinced/tricked a tribunal into accepting barred arguments. If it were otherwise, insurers would have significant incentive to “cheat” the system and “pervert the judicial machinery,” because they would have an “absolute” legal defense to bad faith. Bad action should not be rewarded; the law cannot permit a party to profit from its deception. Essentially, [the carrier in this case] is again attempting to gain “unfair advantage” as a result of its own estopped arguments.... These arguments should be judicially estopped, here.

    “Getting away with it” is not a defense. [The carrier's] argument that it should have an absolute legal defense because it succeeded in perverting the judicial machinery is an absurd argument and that asks for an untenable result.

Hayes, 2020 WL 1322269, at *6.

    The Federal District Court ultimately accepted one of the plaintiff's arguments that there was no room in this case for a fairly or reasonably debatable defense.  However, the Court did not rule on mendacity or the possible appearance of it in this particular case.

    Besides judicial estoppel, the plaintiff also argued that when the Circuit Court affirmed the administrative agency it was an error of law.  Significantly, the plaintiff urged that the trial court was simply wrong in its interpretation of the applicable statutes.  Hayes, 2020 WL 1322269, at *5. 

    The plaintiff's legal argument based on interpretation of statutes at the time the agency and the court denied the plaintiff's claim appears to have been  the basis for the Federal Court's rulings.  The Federal Court granted the plaintiff's motion for partial summary judgment and denied the carrier's motion for partial summary judgment on whether the fairly or reasonably debatable defense was available in this bad faith case.  The Federal Judge ruled:

    The question of [the insurance carrier's] actual intent is a factual matter which must be resolved by the jury should the defendant claim the breach of its duty to Mr. Hayes “occurred for reasons other than fairly misunderstanding its legal obligation under the statute.” [Citation omitted.] What the decisions of the South Dakota Supreme Court before Hayes clearly prohibited was an argument [that the carrier] reasonably believed it had the right to terminate benefits to Mr. Hayes [before he petitioned the administrative agency and its ruling was affirmed by the Circuit Court in this case].

    Defendant’s motion for summary judgment is denied and plaintiff’s motion for partial summary judgment is granted, with the proviso that [the insurance carrier's] actual intent remains a jury question consistent with this order.

Hayes, 2020 WL 1322269, at *9. 

    The effects of this ruling will predictably extend beyond the borders of the particular case and the particular place in which it was made, to other insurer bad faith cases across the United States.

^{1The immunity of worker's compensation carriers from bad-faith claims, recognized in many jurisdictions, is explored at length in Section 11:14, Waiver, in 2 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH (3d Edition & 2019 Supplements, with 2020 Supplements in process, published by Thomson Reuters West).}

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NO INSURANCE COVERAGE, NO INSURANCE BAD FAITH.

In HSBS Bank USA, N.A. v. Fid. Nat'l Title Ins. Co., No. 3:19-cv-00265-MMD-WGC, 2020 WL 886940 (D. Nev. February 20, 2020), a U.S. District Judge applied Nevada substantive law. The federal court granted the defendant title insurance carrier's motion for judgment on the pleadings in that case with respect to the implied covenant of good faith and fair dealing because there was no insurance coverage in the first place.

The Court granted the defendant carrier's motion as to a claim of what the Court called "contractual" breach of the implied covenant, and also granted the motion as to an alleged "tortious" breach of the implied covenant in that case. "Here, Fidelity had a reasonable basis to deny coverage because HSBC's claim was not covered by the Policy, as discussed above. The Court will therefore grant the MJP [motion for judgment on the pleadings] on HSBC's claim for tortious breach of the implied covenant." HSBS Bank, 2020 WL 886940, at *6.

Where there is no insurance coverage, there is no insurance bad faith: That was the reason for the ruling in this case as in so many other cases in the United States, though not all.

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

"THOSE WHO HAVE EARS TO HEAR, LET THEM HEAR."

In answer to two certified questions, the Supreme Court of Washington has unanimously given us enough material to fill books. This will be the second of two posted articles addressing these answers. The first article was posted here on Tuesday, December 3, 2019.

    In Peoples v. Utd. Serv's Auto. Ass'n, ___ Wash. 2d ___, ___ P.3d ___, No. 96931-1, 2019 WL 6336407 (Wash. Nov. 27, 2019), the Supreme Court of Washington was confronted with two questions. Both were certified by a U.S. District Court for answers under Washington State law.

    The two questions arose out of the claims of two of the plaintiffs in the District Court, one Krista Peoples and one Joel Stedman. Both of them were physically injured in a motor vehicle accident. Both claimed Personal Injury Protection or PIP benefits to pay for the bills of their medical providers. Both of them were denied PIP benefits.

    Besides this common core of facts, their claims presented the same broad question of whether the plaintiffs were injured in their business or property so that they could claim standing to sue under Washington State's Consumer Protection Act.

    That is where the questions posed by their separate claims diverged.  The first question, the one posed by the claims of Krista Peoples' class, were discussed here on Tuesday, December 3, 2019.

    Joel Stedman presented the second question.  He alleged that his insurance carrier, Progressive, impermissibly interjected a condition into the statutorily required availability of Personal Injury Protection (PIP) benefits.  This issue has reverberations beyond the boundaries of the State of Washington.

    In Washington State, as in most States, PIP benefits are required to be provided in policies like Stedman's.  The condition challenged in Stedman's action was Progressive's termination of required benefits whenever a claimant reached "Maximum Medical Improvement," or MMI, which it determined.  MMI is not a limitation authorized by the PIP Statute on the receipt or payment of PIP benefits.

    In Stedman's case, filed as a class action, Stedman alleged "that by terminating benefits on the basis of 'Maximum Medical Improvement,' Progressive routinely fails to pay all reasonable medical expenses for treating an insured’s injuries arising from a covered event, in violation of" Washington State Statutes.  Peoples, 2019 WL 6336407, at *1, ¶ 4.

    The Federal judge certified the question whether Progressive's reliance on MMI to terminate PIP benefits satisfied the Consumer Protection Act requirement of an injury to business or property, where an insured like Mr. Stedman was physically injured in a motor vehicle accident and whose PIP benefits were terminated.

    The Washington Supreme Court's short answer is "yes," such claims satisfy the requirement of an injury to business or property.  The Court's reasoning was applied both to the Joel Stedman class claims and to the Krista Peoples class claims discussed in this space on Tuesday, December 3, 2019:

[T]he plaintiffs here do not allege the defendants caused their personal injuries. Their CPA suits do not seek to vindicate their right to be free of bodily harm but, rather, their property interest in the benefits they bargained for in their insurance contracts. When parties enter an insurance contract, the insured obtains a legal right to benefits upon the happening of a particular event. [Citation omitted.]  An insurance contract also gives rise to a quasi-fiduciary relationship between the parties, which requires them to deal in good faith. [Citation omitted.]  An insured, therefore, has a legally protected property interest in benefits due under the contract and a related right to insurance dealings free from bad faith. Claims mishandling and wrongful denial of benefits invade this property interest, regardless of the type of event that triggers coverage.

Peoples, 2019 WL 6336407, at *4, ¶ 12.

    After placing its reasoning in a place where causation of the alleged Consumer Protection Act damages is not a part of the equation at hand, i.e., "regardless of the type of event that triggers coverage," the Court turned its attention to the question of recoverable damages for the alleged injury in fact.

    Stedman and his class sought "to recover excess premiums paid for the PIP coverage," together with "the costs of investigating the unfair acts, and/or the time lost complying with the insurer's unauthorized demands[.]"  Peoples, 2019 WL 6336407, at *2, ¶ 5.  The Washington Supreme Court unanimously spent very little time on the issue of damages recoverable by the Stedman class.

    To begin with, the Supreme Court declined to reach "the portion of the question that asks about excess premiums."  The Court devoted a footnote to Peoples' -- not Stedman's -- use of the phrase as "an alternative way of characterizing unpaid benefits."  Accordingly, in the Court's view, "it is unnecessary to address Peoples' alternative theory about 'excess premiums.'"  Peoples, 2019 WL 6336407, at *4, n.2.  What was good for the Peoples was good for Stedman, too, as the Court declined to address the issue of recovery of any "excess premiums" for unpaid PIP coverage.

    With respect to Stedman's remaining alleged damages, "the costs of investigating the unfair acts" and "the time lost complying with the insurer's unauthorized demands," the Supreme Court answered succinctly that "when a CPA claim is predicated on an insurer’s mishandling of a PIP claim, ordinary CPA principles govern whether investigation costs or time lost are injuries to business or property."   Peoples, 2019 WL 6336407, at *4, ¶ 14.  In answering the questions certified by the Federal court, the Washington State Supreme Court felt no compulsion to hold further whether the actual damages alleged by the Stedman class would if proven be recoverable under the Consumer Protection Act, but it did offer guidance from Washington State case law.

    The Court pointed to its own precedents to note that "we have we have continued to recognize that expenses incurred to investigate a deceptive act or practice are cognizable injuries and damages under the CPA."  Peoples, 2019 WL 6336407, at *4, ¶ 14.

    The Court then turned to precedent from the Washington lower courts concerning the allegation of lost time as a recoverable item of damage under the CPA.  "The Court of Appeals has also held that taking time away from business to respond to unfair practices may satisfy the injury requirement." Peoples, 2019 WL 6336407, at *4, ¶ 14.

    The Court was satisfied that this was all the guidance that litigants would need in cases like the present one:  "The principles articulated in these cases apply when a CPA claim is predicated on an insurer’s mishandling of a PIP claim." Peoples, 2019 WL 6336407, at *4, ¶ 14.

    To summarize what was summarized before, the key issue in the Peoples case was standing to sue.  The key to resolving the standing issue, in turn, was that the alleged 'injury to business or property' in both the Peoples' claims and the Stedman claims was "the deprivation of contracted-for insurance benefits." That was their injury. That conferred their standing to sue.

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"THOSE WHO HAVE EYES TO SEE, LET THEM SEE."

In answer to two certified questions, the Supreme Court of Washington has unanimously given us enough material to fill books.  This will be the first of two posted articles addressing these answers.  The second article will be posted here later.

    In Peoples v. Utd. Serv's Auto. Ass'n, ___ Wash. 2d ___, ___ P.3d ___, No. 96931-1, 2019 WL 6336407 (Wash. Nov. 27, 2019), the Supreme Court of Washington was confronted with two questions.  Both were certified by a U.S. District Court for answers under Washington State law.

    The two questions arose out of the claims of two of the plaintiffs in the District Court, one Krista Peoples and one Joel Stedman.  Both of them were physically injured in a motor vehicle accident.   Both claimed Personal Injury Protection or PIP benefits to pay for the bills of their medical providers.  Both of them were denied PIP benefits.

    Besides this common core of facts, their claims presented the same broad question of whether the plaintiffs were injured in their business or property so that they could claim standing to sue under Washington State's Consumer Protection Act.

    That is where the questions posed by their separate claims diverged.

    Krista Peoples presented the first question.  She alleged that USAA routinely denied PIP claims based on a "practice of algorithmic review[.]"  Peoples, 2019 WL 6336407, at *1, ¶ 3:

    Specifically, Peoples alleges that USAA refuses, without any individualized assessment, to pay medical provider bills whenever a computerized review process determines that the bill exceeds a predetermined limit. According to Peoples, USAA’s failure to investigate or make an individualized determination regarding the reasonableness or necessity of a provider’s charges before denying payment[.]

Peoples's claim was alleged as a class action.  But that was not important to the outcome of her question.  She and the class prayed for "actual damages, including unpaid medical bills and expenses incurred to investigate USAA's wrongful conduct." Peoples, 2019 WL 6336407, at *1, ¶ 3.

    But Peoples and the class emphatically did not sue for their personal injuries incurred in the accident.  Nor did they sue simply because the benefits for which they contracted related to payment of treatment for their personal injuries.

    Rather, they sued because they were deprived of contract benefits, the benefits of statutorily required PIP coverage.  That was their alleged injury to property or business, and that is what conferred standing upon them to sue under the Washington State Consumer Protection Act.

    Stripped to its simplest elements, their question was whether "the wrongful denial of PIP benefits is an injury to 'business or property' under" the CPA.  It bears repeating that "they seek to hold their insurance companies liable for benefits owed under contract. We conclude that the deprivation of contracted-for insurance benefits is an injury to 'business or property'” and that the type of contracted-for insurance benefits does not matter.  Peoples, 2019 WL 6336407, at *3, ¶ 9.

    Beyond contracted-for insurance benefits, the Court answered that policyholders also have "a related right to insurance dealings free from bad faith," that this "protected property interest" is invaded by "[c]laims handling and wrongful denial of benefits, ... regardless of the type of event that triggers coverage." Peoples, 2019 WL 6336407, at *4, ¶ 12.

    In other words, the "algorithmic review" challenged by Krista Peoples and her class may have been the alleged cause of contract benefits being denied here, but it was the wrongful denial of benefits that was important to the outcome.  What was important to the Supreme Court in this decision was the result and not the cause. 

    For all these reasons, the Washington Supreme Court's answer to the Krista Peoples's certified question was in the affirmative:

Therefore, to the extent proved, the plaintiffs may recover actual damages, including out-of-pocket medical expenses that should have been covered, and can seek injunctive relief to compel the payment of benefits to medical providers.

Peoples, 2019 WL 6336407, at *4, ¶ 13.

    To summarize, the key to alleged 'injury to business or property' in the Peoples' class claims was "the deprivation of contracted-for insurance benefits."  That was their injury.  That conferred their standing to sue.

In the next article arising from the Peoples case, the second certified question will be addressed along with the question of whether "injuries to business or property" can ever include "investigative costs or time lost."

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THE McGAHN DECISION: WHAT THE JUDGE ACTUALLY RULED.

    Stated simply, the primary takeaway from the past 250 years of recorded American history is that Presidents are not kings. See The Federalist No. 51 (James Madison); The Federalist No. 69 (Alexander Hamilton); 1 Alexis de Tocqueville, Democracy in America 115–18 (Harvey C. Mansfield & Delba Winthrop eds. & trans., Univ. of Chicago Press 2000) (1835). This means that they do not have subjects, bound by loyalty or blood, whose destiny they are entitled to control. Rather, in this land of liberty, it is indisputable that current and former employees of the White House work for the People of the United States, and that they take an oath to protect and defend the Constitution of the United States.

COMMITTEE ON THE JUDICIARY, UNITED STATES HOUSE OF REPRESENTATIVES, Plaintiff, v. DONALD F. MCGAHN II, Defendant, ___ F. Supp. 3d ___, 2019 WL 6312011, at *44 (DCDC Nov. 25, 2019).

    To make the point as plain as possible, it is clear to this Court for the reasons explained above that, with respect to senior-level presidential aides, absolute immunity from compelled congressional process simply does not exist. Indeed, absolute testimonial immunity for senior-level White House aides appears to be a fiction that has been fastidiously maintained over time through the force of sheer repetition in OLC opinions, and through accommodations that have permitted its proponents to avoid having the proposition tested in the crucible of litigation.

McGahn, 2019 WL 6312011, at *45.

    Thus, for the myriad reasons laid out above as well as those that are articulated plainly in the prior precedents of the Supreme Court, the D.C. Circuit, and the U.S. District Court for the District of Columbia, this Court holds that individuals who have been subpoenaed for testimony by an authorized committee of Congress must appear for testimony in response to that subpoena—i.e., they cannot ignore or defy congressional compulsory process, by order of the President or otherwise. Notably, however, in the context of that appearance, such individuals are free to assert any legally applicable privilege in response to the questions asked of them, where appropriate.

McGahn, 2019 WL 6312011, at *45.

So, this is the law.  It has been the law.  It continues to be the law.

Until this case reaches the Supreme Court.  But until then, and at least for now, this continues to be the law.

And this is what the judge actually ruled.  Check out the newspaper accounts and see what the reporters got right.  See, e.g., David G. Savage, In Major Win for Congress, Judge Rules Trump Aides Must Testify, LOS ANGELES TIMES ONLINE (posted Nov. 25, 2019); Spencer S. Hsu and Ann E. Marimow, Former White House Counsel Donald McGahn Must Comply With House Subpoena, Judge Rules, WASHINGTON POST ONLINE (posted Nov. 26, 2019).

HAVE A JOYFUL AND HAPPY THANKSGIVING!  In the midst of it all, there is a lot to give thanks for!

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BAD FAITH IN PENNSYLVANIA MORTGAGE INSURANCE: 5,246 TIMES.

Nationstar Mortgage LLC sued Radian Guaranty Inc. Nationstar alleged claims "for breach of contract, unjust enrichment, conversion and bad faith." The factual basis of these claims is succinctly stated at the beginning of the Court's opinion:

Nationstar contends that Radian denied, rescinded and curtailed mortgage insurance coverage and refused to reimburse Nationstar for premium overpayments on 5,246 residential home mortgage loans.

Nationstar Mort. LLC v. Radian Guar. Inc., No. 18-03798, 2019 WL 1318541, at *1 (E.D. Pa. March 22, 2019).

Radian challenged all of Nationstar's claims with a motion to dismiss. With respect to the alleged bad faith claim, the Pennsylvania federal court denied the motion to dismiss because the plaintiff alleged three groups of core facts to bring its claim within the Pennsylvania bad faith statute in this case:

    Nationstar contends that Radian acted in bad faith when it denied, rescinded, and curtailed coverage for valid claims and refused to reimburse Nationstar for premium overpayments.... Nationstar alleges that Radian knew and understood that if it wrongfully rescinded, denied and/or curtailed claims that third parties would seek to have Nationstar repurchase these loans..... Moreover, Nationstar’s Complaint is replete with allegations arguing that Radian lacked a reasonable basis for its coverage decisions.

Nationstar Mortgage LLC v. Radian Guaranty Inc., 2019 WL 1318541, at *6. To regroup the core facts alleged by Nationstar Mortgage against Radian Guaranty in this case, first, Radian allegedly "denied, rescinded and curtailed" insurance coverage; second, Radian allegedly "refused to reimburse Nationstar for premium overpayments[,]" and third, Radian allegedly "knew and understood" that its actions disclaiming and discouraging coverage claims would have the effect of discouraging "third parties [who otherwise] would seek to have Nationstar repurchase these loans." On the basis of these alleged facts the Pennsylvania federal court refused to dismiss Nationstar Mortgage's bad faith claim against Radian Guaranty.

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COVERAGE FOR EL PASO AND DAYTON CARNAGE.

There may be coverage for the terrorism-produced carnage in El Paso and Dayton under a recent ruling in a bad faith and coverage case by a federal appeals court. In Universal Cable Prod's, LLC v. Atlantic Spec. Ins. Co., 929 F.3d 1143 (9th Cir. 2019), the federal appellate court held that covered terrorism under an insurance policy was not excluded by a "war actions" exclusion.  The appellate court remanded to the trial court for proceedings on the coverage claims and on the bad faith claims at bar.

More precisely as to the main coverage issue, the court held that an organization known for its violence was not a sovereign state the warlike actions of which would be excluded under an exclusion for "'warlike action by a military force' by a 'government, sovereign, or other authority.'” Instead the terrorist's actions were covered terrorism under the liability insurance policy at bar.

The appellate court applied California law to interpret the insurance policy at issue but relied on federal decisions from New York to reach this ruling. As California and New York go, so goes the coverage nation?

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HELL IN A HELOC.

Dolores Zirbser and Bruce Jon Spalla made a loan agreement for a home equity line of credit ("HELOC"). The loan originated with Wachovia Bank. Wachovia sold the loan to Wells Fargo.

Zirbser and Spalla sued Wells Fargo in December 2018 over billing them for allegedly "erroneous fees" and taking other payments that were not authorized by the loan contract. Wells successfully argued for dismissal of five of the six counts of the complaint on the basis of the statute of limitations, i.e., that the allegedly "illegal charges" were time-barred because they took place too long ago to sue on now.

Except for three charges that were within the time to sue on them. The federal judge denied Wells's motion to dismiss the last remaining count, which is alleged for breach of the implied covenant of good faith and fair dealing under New Jersey law. In New Jersey,

[t]o show a breach of the covenant of good faith and fair dealing, a plaintiff must show “(1) the defendant act[ed] in bad faith or with a malicious motive, (2) to deny the plaintiff some benefit of the bargain originally intended by the parties, even if that benefit was not an express provision of the contract.” [Citation omitted.] Proof of a party’s “bad motive” or “intention” must support a claim of breach of contract grounded on an alleged breach of the implied covenant of good faith and fair dealing.

Zirbser v. Wells Fargo Bank, N.A., No.: 19-cv-01099-RBK-KMW, 2019 WL 3244621, at *4 (D.N.J. July 19, 2019).

In this case, the federal judge held that the plaintiffs adequately alleged a breach of the good faith covenant that was implied in their loan agreement as to those unauthorized charges that were not excluded by the statute of limitations:

... Plaintiffs sufficiently allege bad faith because they state that the Defendant knowingly charged them for three fees outside the express terms of the contract. (Compl. at ¶¶ 21–22.) Defendant did so intentionally and therefore acted “in bad faith, dishonestly, or with improper motive” and “destroy[ed] or injure[d] the right of the [Plaintiffs] to receive the benefits or reasonable expectations of the contract.” (Id. at ¶ 129). Taking all inferences in the Plaintiffs’ favor, Plaintiffs were denied the benefit of their bargain because they contracted to pay for only those fees permitted by the agreement, not any others. (Id.)

Zirbser v. Wells Fargo Bank, N.A., No.: 19-cv-01099-RBK-KMW, 2019 WL 3244621, at *4 (D.N.J. July 19, 2019).

Alleged bad faith in a HELOC. If proven, that means hell in a HELOC. So wait for it: This case will settle now.

Download IBF 08.06.19.

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INSURANCE BAD FAITH LAW APPLIED TO WORKER’S COMPENSATION CLAIM.

In Ball v. Federal Ins. Co., 4:18-CV-04008-KES, 2019 WL 3393166 (D.S.D. July 26, 2019), the federal court applied a merger of insurance bad faith law with the handling of a worker’s compensation claim:

    The first element of a bad faith claim requires an absence of a reasonable basis for denying the benefits of the policy. Hein, [2007 S.D. 40, 731 N.W.2d 231 (S.D. 2007], 731 N.W.2d at 236 (citing Champion, [399 N.W.2d 320 (S.D. 1987)], 399 N.W.2d at 324). “Insurers are entitled to challenge fairly debatable claims.” Id. at 237 (citing Zuke, [1999 S.D. 31, 589 N.W.2d 925 (S.D. 1999)], 589 N.W.2d at 930). “Because any injury in a workers’ compensation bad faith claim stems from the insurer’s denial, not the insurer’s conduct alone, a central element of the cause of action is whether there has been a wrongful denial of benefits.” Id. (citing Champion, 399 N.W.2d at 324).

Ball v. Federal Ins. Co., 4:18-CV-04008-KES, 2019 WL 3393166, at *4 (D.S.D. July 26, 2019). The federal court ultimately denied the worker’s compensation carrier’s motion for summary judgment in that case.

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BAD FAITH CLAIMS DEPENDED ON EVIDENCE. ANYTHING LESS DIDN’T COUNT.

There are two types of insurer bad faith claims under Ohio law, the federal judge ruled in a case involving coverage and bad faith claims under an insurance policy for losses from fire. The case is Jordan v. Liberty Mut. Fire Ins. Co., NO. 4:19CV0093, 2019 WL 3082304 (N.D. Ohio July 15, 2019), and the judge’s ruling applies at least in a first-party case subject to Ohio law like this case:

There are two types of bad faith claims that can be asserted: (1) when the insurer had no lawful basis for its refusal of the claim or (2) when the insurer failed to determine whether there was a lawful basis for the refusal. [Citations omitted.] This principle would appear to remain intact even after Zoppo v. Homestead Ins. Co., 71 Ohio St.3d 552[, 644 N.E. 2d 397] (1994)[, cert. denied, ___ U.S. ___, 116 S. Ct. 56 (1995)], overruled the portions of these decisions inserting an intent element. [Citations omitted.] The first type involves the merits of the contract claim. Therefore, in this type of bad faith claim, the success of the tort claim hinges on the success of the contract claim. [Citations omitted.]

Jordan v. Liberty Mut. Fire Ins. Co., NO. 4:19CV0093, 2019 WL 3082304, at *4 (N.D. Ohio July 15, 2019).
The second type of bad faith claim recognized under Ohio law, according to the federal court in this case, is predicated on an insurance carrier’s failure to determine a legitimate basis to deny the claim before it denies the claim. “A bad faith claim based on failure to determine whether there was a lawful basis to deny coverage is not tied to the underlying merits of the decision to grant or deny coverage.” Jordan v. Liberty Mut. Fire Ins. Co., NO. 4:19CV0093, 2019 WL 3082304, at *4 (N.D. Ohio July 15, 2019).
The federal court ruled that the plaintiff’s allegations in this case triggered both types of bad faith claims. The court denied the carrier’s motion for judgment on the pleadings, which was based on an argument that the contractual limitations period was exceeded as a matter of law when applied to the allegations in the complaint in this particular case.
Evidence is necessary in this case, not judgment on the pleadings, the federal judge ruled.

Download IBF 07.18.19.
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COMPLEX COMMERCIAL CONTRACT COURTS: DECLARATORY JUDGMENTS JURISDICTION OVER BAD FAITH?

Delaware has a specialized court for "complex commercial contract cases."  One such case was decided in Arch Ins. Co. v. Murdock, C.A. No. N16C-01-104 EMD CCLD, 2019 WL 2005750 (Del. Super Ct. May 7, 2019).

Arch Insurance v. Murdock is a lawsuit filed by six excess carriers for declaratory relief.  The excess carriers are seeking a declaration that they do not have a duty to indemnify a settlement in an underlying case.

To say it another way, the excess carriers-plaintiffs in this case are each asking a judge to declare that their respective companies do not have a duty to pay for settlement of the underlying case.

Can jurisdiction for a declaratory judgment on insurer good faith duties to settle be far behind?

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TOWERS OF POWER? LAYERS OF EXCESS? COVERAGE ADDRESSED BY LABELS?

In COSTCO Wholesale Corp. v. Arrowood Indem. Co., NO. C17-1212RSL, 2019 WL 1330455 (W.D. Wash. March 25, 2019), a federal judge applied the express terms of an excess liability insurance policy.  Of course, the federal judge also described the excess carrier's coverage as one "tower" of power, but that did not stop him from reading the policy.

The federal judge applied the particular carrier's excess insurance policy language to hold:  First, that both the policyholder's, COSTCO's, and the carrier's, Arrowood's, respective motions for summary judgment were both granted in part and denied in part.

Second, Arrowood showed "no basis on which that amount [of Arrowood's payment toward an underlying settlement] should be reimbursed."

Third, the Court found that "the post-settlement arbitration costs paid by Arrowood - including mediator expenses, expert fees, and attorney’s fees - are recoverable “Loss” as long as they are reasonable, and the record does not support a finding that any particular invoice or portion of an invoice was unreasonable."

Finally, COSTCO was held not to be "entitled to recover expenses incurred on programmatic relief, however, or its attorney’s fees in this coverage litigation. Neither party is entitled to summary judgment on Costco’s tort and statutory claims."

COSTCO Wholesale Corp. v. Arrowood Indem. Co., NO. C17-1212RSL, 2019 WL 1330455, at *10 (W.D. Wash. March 25, 2019).

So, there you have it.  No tower of power.  Only judicial interpretation of insurance policy language, even the language of an insurance policy issued by an excess carrier.  When it comes to judicial interpretation, hanging out in a tower is not a good escape.

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"DUDE, YOU OVERDID IT."

It is settled Florida law that "implications of bad faith should not form a basis to determine liability in a first party insurance coverage action."  Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 184 (Fla. 4th DCA 2018).  The appellate court granted the carrier's motion for new trial "grounded on [the policyholder's attorney's] improper arguments and questioning of HCI's litigation manager[.]"  Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 183 (Fla. 4th DCA 2018).

          The appellate court summarized the implications and arguments in general terms as follows:

    HCI argues that a new trial is warranted because Kuwas presented his theory of the case in such a way as to improperly imply HCI's bad faith in the handling of the claims in this case and other cases in general. In particular, HCI points to [the policyholder's attorney's] remarks that HCI was “playing the odds” in deciding to deny a claim “in the hope that the party who is seeking to be paid under a policy will not sue them.” HCI argues that [the policyholder's attorney] improperly used this phrase in his opening statement, closing argument, and his examination of HCI's litigation case manager.

Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 184 (Fla. 4th DCA 2018).   The appellate court gave a few details about these questions and implications, but not very many.  Not until they reached the policyholder's attorney's closing argument.

          Then the appellate court quoted the following apparently verbatim:

“Everything that one needed to know was stuff that they knew from day one. And what they did was, they decided to play the odds. Right? We'll talk a little bit about that. They decided, we're going to play the odds. And we're just going to disregard responsibilities that they have, personal responsibility.”

Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 184 (Fla. 4th DCA 2018) (emphasis added by the Fourth District Court of Appeal).

          And so, on the basis of all these implications, arguments, questions, and statements, the appellate court granted the carrier a new trial in this first-party insurance coverage case because the remarks implied bad faith as a basis for the jury to determine the carrier's liability on an insurance coverage claim.

          But the appellate court was not done, because the arguments, questions and statements were not done in the trial court.  The carrier initially alleged an affirmative defense based on "the sewer backup exclusion" in its policy, but withdrew it sometime before this case was tried.  See Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 186-87 (Fla. 4th DCA 2018).  At the trial, the policyholder's counsel closing included the following additional commentary, all in addition to the remarks previously quoted:

And you know, this case was filed last year. And we're litigating for—it's an early case, the number 500 case last year probably is 14 months old. We're litigating for 14 or 15 months. And we're fighting like the dickens over whether or not a sewer backup is excluded. And then we come to court after all this litigation, after all of this depositions, and motions, and whatnot—... Right? After depositions and whatnot, and [HCI] comes in and says oh, by the way, we just were kidding about that one. We're just kidding about that. That one doesn't apply. You know the plaintiff's right, that doesn't apply, okay, but let's try something else, right?

Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 186 (Fla. 4th DCA 2018) (again, emphasis added by the Fourth District Court of Appeal).

          The appellate court agreed with the carrier's argument that it was deprived of a fair trial by these remarks in this insurance coverage case, because, it asserted, "this comment denigrated its defense and implored the jury to punish it for exercising its rights to conduct discovery and litigate motions in connection with the case[.]"    Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 187 (Fla. 4th DCA 2018).  The appellate court agreed.  It reversed and remanded the case for a new trial on the strength of these additional remarks, as well:

We agree that a new trial is warranted because the comments made by [the policyholder's counsel] in closing argument improperly denigrated HCI's defenses and were so highly prejudicial and inflammatory such that it was denied its right to a fair trial.

Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 188 (Fla. 4th DCA 2018).

          The moral of the story is not so much to keep your mouth shut, for what else is a lawyer hired to do, except represent her or his client?  Rather, the moral of the story is summed up in the title of this article:  Dude, you overdid it.

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GREAT EXPECTATIONS: THE NEW JERSEY INSURANCE FAIR CONDUCT ACT

Some commentators are getting so excited about the prospect of the "New Jersey Insurance Fair Conduct Act" becoming law that they may have jumped the gun, just a bit.

It is true that on June 7, 2018 the New Jersey State Senate passed Bill S2144, which would become the Act, once the New Jersey State Assembly passed it.

However, on June 11, 2018 the New Jersey State Assembly sent S2144 to the Assembly Financial Institutions and Insurance Committee.  Presumably, the Bill will not become a law until it is passed out of that Committee and is approved by the full Assembly.

When it does become law, the Act for sure bears watching.  It will take a little while to understand all of the issues it raises, so the present interval we have before enactment is time that can be put to good use studying the final version when and if it passes the New Jersey State Assembly.  In the interim, the biggest excitement seems to be the onset of first-party bad faith litigation if the bill becomes law in anything like its present form.

Time will tell.  In the interim, one provision that has so far survived two bouts in the New Jersey Senate and the introduction of a corresponding bill in the New Jersey Assembly, is this language that has not been changed in its appearances in either chamber:

2. As used in this act:

     "First-party claimant" or "claimant" means an individual, corporation, association, partnership or other legal entity asserting an entitlement to benefits owed directly to or on behalf of an insured under an insurance policy.

(Emphasis added.)  The italicized language does not appear to be ambiguous in any way.  Taken literally, this language would mean that parties other than an insured could assert an insured's entitlement to benefits owed "on behalf of an insured under an insurance policy."

So, if a mortgagee like a bank that has lent money for a mortgage is owed money after a loss, or even if say it is named as a payee on the check that pays the loss ("ATIMA," or as their interests may appear), does this mean that it can assert "an entitlement to benefits owed ... on behalf of an insured under an insurance policy" that protects the collateral, in this case, the insured's house?

As a mortgagor, every insured homeowner has to agree to obtain insurance to protect the bank's interest in being paid.  So, it is usual and ordinary for that insurance policy to reflect that the bank will be named as a payee on the check that pays the insured's loss, as the bank's interests may appear.

So, to say again, will the New Jersey Insurance Fair Conduct Act -- if enacted in anything like the pending bills' present forms -- confer standing on a bank or any other mortgagee to sue the insurance company because, as the mortgagee, it has an entitlement to benefits owed on behalf of the homeowner-insured under the insurance policy?

So, to say again, time will tell.

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GINA HASPEL: IN BAD FAITH THEN? IN BAD FAITH NOW?

There are times when questions of bad faith go beyond insurance.  This is such a time.  Some people are supporting Ms. Gina Haspel's nomination to become the next Director of the Central Intelligence Agency with what used to be called The Nuremberg Defense:  "I was just following orders."  That defense did not work at Nuremberg and it should not work now.

So, there is a question to which I would like to know the answer when Ms. Haspel's nomination is approved by the Republican Senators at their hearing tomorrow:

If you were ordered to commit torture, did it ever occur to you to say "No"?

The follow-up answer is pretty easy for most people:  "Why not?"  But I am not as concerned with hearing Ms. Haspel's answer to that question partly because we may already know her answer after hearing her supporters:

She was just following orders.

No, what I would like to know is whether it ever occurred to her to say "No" if and when she got orders to torture people.  That will tell us what we need to know about how she will respond to other orders when she is confirmed as Director of the CIA, if an order to torture people is no impediment to her.

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"FIRST, THEY CAME FOR THE IMMIGRANTS": SELECTIVE ENFORCEMENT, BAD FAITH?

There are many reports recently that immigrants are being targeted in California, not so much in other places at the moment, because California is on the outs with the current regime.

If those empowered to enforce laws pick which places to enforce them in, to the exclusion of other places, what is to stop them from selectively enforcing any laws against any group of people who are not in favor?

We are concerned in this space with insurer bad faith.  First there is a predicate question, which is what we lawyers call a preliminary question that would have to be answered before we could answer the main question:  Will there be insurance coverage for selective enforcement? 

Not just one branch of police or another might want to claim coverage in the future, but any part of the military, state police, federal agents, or any other government organization equipped with guns and a uniform or badge might be interested in whether there is coverage in the future.

To think about the insurance coverage question most clearly, suppose that the selective enforcement is not policy because that would make the question of insurance coverage harder by moving closer to obviously intentional discrimination.

So, the coverage question then would suppose that rogue units engaged in selective enforcement, and that their members who engaged in this behavior were not immune from liability or suit.   That would still leave an intentional discrimination question, but one that would be easier to answer in insurance terms.

Would it be bad faith to deny a defense?

The duty to defend depends on allegations and claims.  So, whether there would be a duty to defend would depend on how the selective enforcement discrimination claims were pleaded.

If it were arguable, for example, that the pleaded claims could be proven by evidence of "disparate impact" or different impacts on different groups from the same pattern of behavior, for example, then perhaps there would be a potential for coverage and, under the test in most jurisdictions, therefore a duty to defend.

The duty to defend would arguably be breached by the liability carrier's refusal or failure to defend in that case.  Some judges call this "bad faith," but no jurisdiction consistently treats a breach of the duty to defend as automatically triggering extracontractual damages.  In some jurisdictions, to be sure, a refusal or failure to defend potentially covered claims under a liability policy could subject the carrier to liability separate and apart from its policy limits, or over and above its policy limits if you will.

Bad faith in settlement?

Liability for bad faith in settlement will depend largely on settlement demands in a situation like this.  For example, a settlement demand here might include a demand that the selective enforcement be put to a stop.  Obviously that particular behavior would be within the control of the insured rather than the carrier.  There is an argument in that situation that a liability insurance company can do nothing in settlement negotiations without the insured's cooperation.

Perhaps this situation would raise a defense to insurance coverage rather than a question of insurer bad faith.

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Related articles

Abraham on Tort Luck and Liability Insurance

FIRING BOB MUELLER:  ACTIONABLE BAD FAITH?

FIRING BOB MUELLER: ACTIONABLE BAD FAITH?

We will keep the actors in the following scenes anonymous.  We will not only keep personalities out of this.  We will not distract our thinking with personalities.

Assume that when Special Counsel Robert Mueller is fired, that the person or persons involved do not have immunity for their conduct.

Assume further that someone would have standing to sue because Mr. Mueller is fired as Special Counsel.  (That is a big assumption given the current composition of the Supreme Court.)

There are questions whether firing Bob Mueller will be actionable bad faith under any likely set of circumstances.

Refusal or failure to defend?  Suppose that a liability carrier for one of the persons sued for firing Special Counsel Mueller, failed and refused to defend that person?

When a liability carrier wrongfully refuses or fails to defend, it is not so much bad faith as a breach of contract.  It may be a breach of contract with potentially disastrous consequences, that is sure, but it is a breach of contract nonetheless. 

Contract breach or bad faith, there could certainly be a wrongful refusal or failure to defend here, assuming coverage in the first place.

Failure to initiate settlement negotiations?

Breach of settlement duties?

These questions presuppose an answer to an underlying question:

What would settlement look like?

Until we have an answer to that question in our own minds, we cannot explore bad faith breach of settlement obligations of a liability carrier for a person responsible in some part for the firing of Special Counsel Robert Mueller.  Until then, we must come to a stop.

Perhaps this is an illustration of why "bad faith" does not always mean the same thing as extracontractual damages.

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DELAWARE INSURANCE JUDGE REJECTS ANOTHER DELAWARE JUDGE'S "INTENTIONAL AND BAD FAITH" FRAUD RULING.

In an insurance case, a Delaware judge reportedly ruled on March 1, 2018 that Delaware law should apply to an insurance case.  The Delaware judge in the insurance case reportedly ruled that "'[a]lthough it may strain public policy to allow a director to collect insurance on a fraud, it does not appear to be explicitly prohibited by Delaware statutory law.'"

Don't strain yourself judge.  Another Delaware judge already determined that the fraud involved was "intentional and in bad faith."

The insurance case in Delaware grew out of an earlier fraud case in Delaware.  The fraud case involved the same individuals who are apparently claiming Directors and Officers Coverage in the insurance case.  Their fraud was actually proven in a trial in the Delaware fraud case.  The fraud was that the individuals gave the board of directors of Dole Food Co. false estimates of "how much money the company could save" from accepting a buyout offer from one of the individuals.  James Rufus Koren, "A Court Found That an L.A. Billionaire Duped Dole Investors.  Now He Wants to Stick Insurers With The Bill" (Los Angeles Times Online, Friday, March 9, 2018).

After the trial of the Delaware fraud case concluded, the Delaware judge presiding wrote that the defendants' "'actions were not innocent or inadvertent, but rather intentional and in bad faith.'"  James Rufus Koren, supra, quoting the 2015 opinion of Delaware Chancery Court Chancellor J. Travis Laster.

Stop and reflect with me for a moment.  Has an insurance coverage trial lawyer ever been born who would not be really happy with Judge Laster's quoted ruling, if you had to prove intentional and bad faith conduct that barred all coverage for it?  Now back to the rest of the story so to speak.

Judge Laster held in the Delaware fraud case that the two individuals who would later claim coverage as directors' and officers' policy "insureds" should accordingly pay $148 million.  Apparently before judgment was entered in that amount, the individuals settled -- for that amount together with interest. 

The Directors and Officers Carriers Raise the Fraud Ruling as a Defense to Coverage.

 The Directors and Officers Carriers filed an action in Delaware to declare that their insurance policies did not cover the "intentional and bad faith" fraud.  They argued in particular that their position was a "slam dunk" under California law, but the judge in the Delaware insurance case declined to bar the coverage claim under any State's law.  As noted, the Delaware judge in the insurance case reportedly ruled that Delaware law should apply, and anyway, "'[a]lthough it may strain public policy to allow a director to collect insurance on a fraud, it does not appear to be explicitly prohibited by Delaware statutory law.'"

So there you have it.  Where are the "fortuity" ideologues when they might do some good?  The fortuity ideologues are people who claim, at least when they have a dog in the fight and it is to their advantage, that insurance does not apply unless the covered risk was fortuitous and, moreover, that the party claiming coverage has a burden to prove that the risk involved was fortuitous.  There can be no judicial declaration of coverage, the fortuitous ideologues continue, unless the risk is fortuitous.

A trial in the insurance case in Delaware is reportedly currently scheduled for July, 2018.

Stay tuned.

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IN PENNSYLVANIA, DISCOVERY VIOLATIONS ARE HELD NOT BAD FAITH.

In Homer v. Nationwide Mut. Ins. Co., ___ Fed. App'x ___, No. 16-3686, 2018 WL 1081230 (3d Cir. February 27, 2018), the Third Circuit Court of Appeals refused to recognize an insurance carrier's alleged litigation conduct consisting of retaining and presenting the allegedly skewed testimony of experts, as actionable bad faith.

The Third Circuit based its holding in this case on the record facts and on the Court's understanding that even though Pennsylvania bad faith law allows evidence of litigation conduct in a bad faith lawsuit, still it does not allow "discovery disputes" to rise to the level of actionable bad faith:

Both this Court and the Pennsylvania Superior Court have, however, held that pure discovery violations cannot rise to the level of bad faith. W.V. Realty [W.V. Realty, Inc. v. Northern Ins. Co., 334 F.3d 306], 314 [(3d Cir. 2003)]; O’Donnell [O’Donnell ex rel. Mitro v. Allstate Ins. Co., 734 A.2d 901,] 908-09 [(Pa. Super. Ct. 1999)]..

Homer v. Nationwide Mut. Ins. Co., ___ Fed. App'x ___, No. 16-3686, 2018 WL 1081230, at *2 n.10 (3d Cir. February 27, 2018).

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IT'S NOT THE INSURED'S UNPAID PIP CLAIM. IT'S YOURS, PROVIDER.

In Spine Care Delaware, LLC v. State Farm Mut. Auto. Ins. Co., No. 17-1816, 2018 WL 810112 (D. Del. February 9, 2018), the United States District Court for Delaware applied Delaware law, naturally enough, to a provider's unpaid Personal Injury Protection benefits (PIP) claim.  Delaware law is just like every other jurisdiction's PIP law in requiring PIP benefits of the kind that this provider conferred upon the policyholder.  So, also naturally enough, the unpaid PIP provider sued the PIP carrier to get paid for conferring the PIP benefits covered by the PIP coverage at issue.

The thing is, the PIP provider in effect sued in the name of the policyholder, akin to asserting a bad faith claim against the carrier as an assignee of the policyholder.  The provider's reasoning apparently went something like this:  PIP benefits are required in an insurance policy by statute; we, the provider, provided the PIP benefits to the policyholder; therefore, we, the provider, are entitled to be paid for providing the PIP benefits.  So far, so good, except ....

A provider's claim for unpaid PIP benefits belongs to the provider, not to the policyholder.  So, the provider's claim in this case was temporarily dismissed.   Undoubtedly the newly enlightened provider will amend its complaint or refile to assert its own injury so that the unpaid PIP claim can proceed.

The District Court in Delaware put the matter concisely at the beginning of its very well-reasoned opinion:

    A medical provider challenging an insurer's handling of a patient’s medical claims must plead why it can recover an insured's claim. It is not the insured whose insurance claim is delayed or denied. We cannot simply assume the medical provider suffered injury caused by the insurer's conduct. As the medical provider presently fails to plead an identified injury through the insurer's treatment of at least one identified insured's claim, we grant the insurer's motion to dismiss without prejudice for the medical provider to amend its claim.

Spine Care Delaware, LLC v. State Farm Mut. Auto. Ins. Co., No. 17-1816, 2018 WL 810112, at *1 (D. Del. February 9, 2018).

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KENTUCKY RAIN ELVIS SANG ABOUT WASHES AWAY CARRIER'S CAREFUL PLANS.

A liability carrier's decisions to simultaneously defend its policyholder under a reservation of rights, seek declaratory judgment of no coverage, and settle underlying claims against the policyholder, did not bar a bad faith claim nor claims under the Kentucky Unfair Claim Settlement Practices Act and the Kentucky Consumer Protection Act, Kentucky's highest court held in Indiana Ins. Co. v. Demetre, 527 S.W.3d 12 (Ky. 2017).

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NEWS FLASH!! SENATE LEADERS INSERT SECRET HEALTHCARE REPEAL IN TAXES.

Is your attention focused on the tax cuts for everybody but you?  Don't miss this.

This week the leadership of the United States Senate pulled a bait and switch.  Or you can say that they pulled a fast one.  They lost straight up on repealing Health Care on what seems like about half a dozen votes.

What they have done now is insert a provision into a tax bill which will effectively repeal healthcare for 13 Million people in the United States.  So says the Congressional Budget Office.  That is the CBO's best estimate of how many people will have their healthcare taken away in order to fund the tax cuts in the bill for a couple of dozen people.

This was literally done in the dark, apparently.  The Senate leadership introduced this new back-door repeal legislation in the night.

The difference between the 13 Million people on the one hand, and the couple of dozen people at most on the other hand?   The couple of dozen people on the other hand have more money than all of the 13 Million people put together.

And they spend it.  On the politicians who are proposing this travesty.

But they do not spend their money on the economy and they obviously do not spend their money on taxes.  Instead, other people pay the taxes they do not pay.  If the other people do not make up the difference, then the other people go without.

Sometimes, like the case of the bill secretly slipped into the mix by the Senate leadership, even if the other people pay their taxes they can still end up going without.  In this case, that means going without health insurance that covers anything.  To say again, this affects more or less 13 Million people.

Call your Members of Congress, Representatives and Senators, and let them know if you support or if you oppose the substance of this plan, and let them know too if you support or if you oppose the deceitful way it is being attempted.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

PERFECTION IS NOT REQUIRED. BUT MEDICAL EXPERT TESTIMONY IS: HOLDING.

In Duncan v. GEICO Gen. Ins. Co., No. 8:17-CV-40-T-30TGW, 2017 WL 4574605 (M.D. Fla. October 13, 2017), the Court held that perfection is not required in the handling of an Uninsured Motorist (UM) claim to avoid a bad faith claim in Florida. 

But medical expert testimony is required, the same Court held, if the bad faith UM claim is based on the carrier's alleged handling of the policyholder's permanent injury.  Since the plaintiff-policyholder did not introduce expert medical evidence into the record that he was permanently injured, the District Judge granted the UM carrier's motion for summary judgment on his bad faith claim.

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DESPITE BAD FAITH, REPORTING, CURRENT POLITICIANS:  HEALTHCARE COVERAGE IS REALLY STILL THERE.

Is Healthcare Coverage still available under the Affordable Care Act?  Absolutely.

Can you and can your clients still sign up?

Definitely.

Will you and will your clients be able to sign up now if you want?

Totally.

Answers to these and other important questions are reported in an excellent article by Haeyoun Park, "Yes, You Can Still Enroll in Obamacare:  Five Answers to Questions About Getting Covered" (New York Times online, posted on Saturday, October 14, 2017).

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