Claims and Bad Faith Law Blog

FIRST-FILED STAYS WHERE IT IS, OPIOID LAWSUITS OR NOT.

(Courthouse, Baltimore, Md./New York Public Library Digital Collections)

In an UNPUBLISHED opinion, with a caution on its face to CHECK COURT RULES BEFORE CITING, the Delaware Superior Court determined that a  coverage case with respect to Opioid Lawsuits against CVS will remain pending in Delaware, at least for now.  The decision is In Re:  CVS Opioid Ins. Litig., Consol. C.A. No. N22C-02-045, 2022 WL 3330427 (Del. Super. Ct. Aug. 12, 2022).

The Court was faced with two competing lawsuits and a motion to dismiss or stay based on forum non conveniens.  The first lawsuit was filed in Delaware by CVS's insurers for a declaration that the carriers do not provide insurance coverage for indemnity or defense of the Opioid Lawsuits against CVS.  The Opioid Lawsuits against CVS are pending in Multi-District Litigation centered in the Northern District of Ohio.  There are also some Opioid Lawsuits pending against CVS in State Courts.

The second lawsuit of concern was a lawsuit filed in Rhode Island by CVS against its insurers, after the insurers filed their lawsuit in Delaware.  CVS sued in Rhode Island for insurance coverage and also for alleged insurer bad faith.

The Delaware Court ruled that the Delaware case having been filed first, it is CVS's burden to establish forum non conveniens by showing that CVS faces an "overwhelming hardship" to litigate the Delaware case in Delaware.  In re:  CVS Opioid Insurance Litigation, 2022 WL 3330427, at *7.

The Court held that CVS did not meet its burden.  Under this decision, the Delaware lawsuit filed by CVS's carriers for declaratory relief relative to coverage for the Opioid Lawsuits against CVS, remains pending in Delaware accordingly.

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

APPEASEMENT WITH JURISDICTION NO BETTER THAN APPEASEMENT WITH TERRITORY.

The case raises questions about ceding jurisdiction over public health policy to one federal district judge.  The case is Health Freedom Defense Fund v. Biden (M.D. Fla. No. 8:21-cv-01693). 

The Complaint alleged jurisdiction only on the basis of diversity.  The Complaint was filed in the names of three plaintiffs.  It alleged that two individual plaintiffs are from Florida, and that the third plaintiff is a Wyoming corporation headquartered in Idaho.

The two individuals claimed that they wanted to use public travel in the future.  Their travel plans might include travelling by airplane from the Tampa airport, and they alleged that to do so, they would have had to comply with a mandate to wear masks in the COVID-19 pandemic.  That entitled them, they alleged, to sue the many officials of the federal government in Tampa.  Download Health Freedom Defense Fund v. Biden Doc. 1 Complaint filed 07.12.21 (M.D. Fla. No. 8.21.cv.01693)  (jurisdiction alleged under 28 U.S.C. §§ 1331 & 1346, and 5 U.S.C. § 702.03; venue alleged under 28 U.S.C. § 1391(b)(2)&(e)(1)).

The Department of Justice filed an Answer with no affirmative defenses on behalf of the United States.  Download Health Freedom Defense Fund v. Biden Doc. 20 Answer filed 1013..21 (M.D. Fla. No. 8.21.cv.01693).pdf NO ADS! 

They did not challenge jurisdiction or venue in Tampa.

They did agree, however, that the plaintiffs could amend their complaint.  Download Health Freedom Defense Fund v. Biden Doc. 39 Amended Answer filed 12.13..21 (M.D. Fla. No. 8.21.cv.01693)  But they did not defend against the Amended Complaint, not even filing an Answer.

They did not file any affirmative defenses in response to this do-over opportunity, either.

The plaintiffs' uncontested theories of jurisdiction and venue are simple:  This suit could have been brought anywhere.

That means of course that if these theories prevail -- and they sure seem to have prevailed so far -- a suit like this can be brought anywhere.

That offers an alternative to the appeal which the DOJ has filed, at least an alternative to running the risk of bad precedent from the Eleventh Circuit Court of Appeals.  The greatest danger to acceptance of Judge Mizelle's ruling may not be the public criticism of it, or even the possibility that the Eleventh Circuit may reverse her ruling.

The greatest danger to acceptance of Judge Mizelle's bizarre ruling is that  District Judges ruling in other jurisdictions may reject it.

For that matter, nothing prevents people living in the Middle District of Florida from filing suit to request declaratory relief of the Center for Disease Control and Prevention's (CDC's) mask-mandate-for-public-travel, either.

If jurisdiction and venue are proper in federal District Court in Tampa in this case, then jurisdiction and venue are proper in any federal District Court in the United States in a case like this.

Perhaps that will help put this case back in perspective.  "Just sayin'."

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

NO "SPECIFIC, IDENTIFIABLE" CLAIM OR CASE? NO FEDERAL JURISDICTION.

In State Auto Prop. & Cas. Ins. Co. v. Williams, No. 20-CV-1420, 2021 WL 2106488, at *4 (C.D. Ill. March 15, 2021), the District Judge applied a rule of federal jurisdiction which is summarized in the title of this article:  No "specific, identifiable" claim or case?  No federal jurisdiction.

          In that case, the federal court did not have jurisdiction to issue declaratory relief as between a liability carrier and Norfolk Southern Railway Company, "a purported additional insured" under a policy the carrier issued to one Williams.  Williams, in turn, was doing business as Jandi Services, a cleaning company.  Norfolk contracted with Williams d/b/a Jandi Services for cleaning services.  State Auto Property, 2021 WL 2106488, at *1.  Although the underlying claimant provided Norfolk with an unfiled draft complaint against Norfolk, State Auto Property, 2021 WL 2106488, at *2, there was no underlying action against Williams.  State Auto Property, 2021 WL 2106488, at *2.

          Making a complicated story simpler, there was no "specific, identifiable" claim or case in the eyes of the District Judge.  The Court accordingly granted the defendants' motion to dismiss the carrier's complaint seeking a declaration that it has no duty to defend.  State Auto Property, 2021 WL 2106488, at *6.

Please read the disclaimer.  ©2022 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.

Please Read The Disclaimer. ©2019 Dennis J. Wall.  All Rights Reserved.

SOMETHINGS FISHY, DECIDED IN THE SOUTHERN DISTRICT OF FLORIDA.

In the case of Somethings Fishy Enter's, Inc. v. Atlantic Cas. Ins. Co., Case No. 18-23990-CIV-GOODMAN {CONSENT CASE], ___ F. Supp. 3d ___, 2019 WL 5866823 (S.D. Fla. Nov. 8, 2019) (Goodman, USMJ), a business insured made claims for Hurricane Irma damages under its commercial property insurance coverage and under its loss of business income coverage under a single policy with Atlantic Casualty.

The policy had a Windstorm Exclusion.  An independent adjuster hired by Atlantic Casualty "determined that all of the damage at the Property was the result of winds from Hurricane Irma and flooding."  Somethings Fishy, 2019 WL 5866823, at *1.  Atlantic Casualty denied all coverage on the basis of the IA's inspection and evaluation.

The Court determined two things at least.  The first thing the Court determined is that if the claimed damage was caused by Hurricane Irma, then the damage was not caused by a Covered Cause.  The policy expressly provided that coverage was provided for direct physical loss unless the claimed loss is excluded or limited.   Somethings Fishy, 2019 WL 5866823, at *4.  

Second, the policy's Windstorm Exclusion applied to exclude the claimed loss from Hurricane Irma.   Simply put, the Windstorm Exclusion barred coverage for loss or damage "'[c]aused directly or indirectly by Windstorm or Hail, regardless'" of any other concurring cause of loss. The policy's Windstorm Exclusion also provided that "hurricane loss is 'therefore not a Covered Cause of Loss.'" Somethings Fishy, 2019 WL 5866823, at *4 (emphasis in original material quoted by the Court).

The Court accordingly granted Atlantic Casualty's motion for a summary judgment of no coverage.  Although the Court did not delve into any other policy exclusions in its opinion, the Court still found space to declare them after the Court said that it did not have to declare them:

The Court need not consider if any additional exclusions apply under the Policy because the Windstorm Exclusion bars coverage as a whole. However, the Court finds that the following exclusions also apply: the Utility Services Exclusion, which bars any loss resulting from a power outage; the Water Exclusion, which bars coverage for loss caused by flooding; and the Limitation for loss of animals unless caused by a specified cause of loss (which does not include power outage or hurricane).

Somethings Fishy, 2019 WL 5866823, at *5.

Magistrate Jonathan Goodman decided this case.  A little "inside baseball":  He is almost a U.S. District Judge already.  The lawyers who practice regularly in the Southern District of Florida hold him in high regard, and for the most part they enjoy his cultural references to the lyrics of pop songs and such.  Keep an eye out for his continuing rise.

Please Read The Disclaimer. ©2019 Dennis J. Wall.  All Rights Reserved.

 

RECOVERING POLICY LIMITS WITHOUT COVERAGE.

There are many things to say about the rulings in the Szafarowicz case.  Commerce Ins. Co. v. Szafarowicz, 131 N.E.3d 782 (Mass. October 1, 2019).  A special feature of the case was discussed in an article posted here on October 22, 2019, and the background of the case has been discussed with unique insight into Insurance Coverage Law in Massachusetts by Nina Kallen, Esquire in her blog of that name, most recently on October 23, 2019.

I have struggled with ways to organize my own remaining thoughts about the reported decision in this case.   Here is how I settled, for now, on organizing some of them.

1.  Recovery under a stipulated settlement or "Consent Judgment" in this case was limited to policy limits because that's what the insureds and the claimant agreed.

The insureds and the deceased claimant's estate stipulated to settlement of the estate's Wrongful Death Action against the insureds.  Although it appears not to be relevant to the stipulation, the fact that the settlement happened at all has everything to do with a couple of further facts by way of background here.  The insureds were being defended by Commerce at the time under a reservation of rights to deny all coverage.  Commerce also separately pursued a Declaratory Judgment Action before the underlying settlement was stipulated.  (Commerce objected to the settlement.)

As a part of their stipulated settlement, the insureds and the estate in the Wrongful Death Action stipulated that the estate's recovery if any would be limited to the insureds' Commerce policy limits and that they, the defendants-insureds, would not face any other risk of damages other than the Commerce policy limits.  Szafarowicz, 131 N.E.3d at 789.  Not only did the estate stipulate to limiting recovery to policy limits.  "The estate agreed that it would not seek to collect or enforce any judgment against the [insureds] beyond the amount payable under their insurance policy[.]" Szafarowicz, 131 N.E.3d at 789.  

That is why the estate's potential recovery against Commerce was limited to the policy limits by the Supreme Judicial Court of Massachusetts:  Anything else they could say would be dicta in the face of these facts.  The facts of this case determined the outcome.

2.    Recovery of policy limits was possible in this case even though there is no insurance coverage.

The Massachusetts Supreme Judicial Court allowed injured claimants, broadly speaking, to recover from defendants' liability insurance carriers so long as certain conditions were met.  Those conditions are discussed below.

However, in the Szafarowicz case, by the time the Supreme Judicial Court ruled there had already been a judicial determination that Commerce had no coverage under the "optional" bodily injury liability coverage under its policy. Szafarowicz, 131 N.E.3d at 790-91.

To recover policy limits, which the Szafarowicz Court said it would allow theoretically, means that the injured claimant would recover under the policy.  Yet in this case, there was already a determination that there was no coverage under the policy.  Still the Massachusetts HIgh Court remanded for a determination in the lower courts under its theoretical framework for recovery of Consent Judgments, as discussed below.

That framework simply does not include proving insurance coverage for the loss.  If it did, the Szafarowicz Court would not have remanded for a determination of anything in this case, where to say again there was already a judicial determination of no insurance coverage for the loss.

3.    "How many angels can dance on the head of a pin?"  Theoretically.  The elements of recovery under a Consent Judgment in Massachusetts today.

Well, there was still the matter of whether Commerce would be liable for post-judgment interest on any part of the underlying Consent Judgment.  So, the Massachusetts Supreme Judicial Court said that it was fashioning a rule to address that situation.  But that is not what they actually did.

In Szafarowicz, the Court fashioned a rule for recovery under Consent Judgments generally:

    Balancing these risks and benefits, we conclude that an insurer who defends a claim under a reservation of rights is bound by the amount of a judgment arising from a prejudgment settlement/assignment agreement where (1) the insurer is given notice of the settlement/assignment agreement and an opportunity to be heard by the court before judgment enters; (2) the insurer contests the judgment; and (3) the insured, after hearing, meets his or her burden of showing that the settlement is reasonable in amount.

Szafarowicz, 131 N.E.3d at 797.

The Court said, theoretically, that "the probability of a finding that the plaintiff's injuries were caused by an accident rather than intentional conduct ... may also be considered in determining the amount of a reasonable settlement." Szafarowicz, 131 N.E.3d at 798.

They said this despite the fact that, in this case, they previously said that on remand Commerce will not be bound here "to pay the damages determined at the assessment hearing, because it obtained a declaratory judgment that it was not obligated to pay these damages." Szafarowicz, 131 N.E.3d at 796.

In the final analysis, the Szafarowicz Court was against exposing carriers to recovery beyond policy limits even when Consent Judgments are successfully enforced against the carriers, at least in a case like this where the insureds and the injured claimant stipulated to that result.  Except that liability carriers can be exposed to paying Consent Judgments even when they have no coverage under their policies for the loss at issue unless they previously obtained a judicial declaration of no coverage for the loss at issue, as in this unique case.

Whew.  Complicated, isn't it?  Maybe it became more complicated in Szafarowicz than it had to be.  Who am I to judge?

Please Read The Disclaimer. ©2019 Dennis J. Wall.  All Rights Reserved.

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?

Please Read The Disclaimer.  ©2019 Dennis J. Wall.  All Rights Reserved.

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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"WRONGFUL EVICTION" AS A CGL PERSONAL INJURY OFFENSE.

In order to qualify as covered "Personal Injury" under a Comprehensive General (or Commercial General) Liability policy (CGL), "wrongful eviction" requires a possessory interest or there is no Personal Injury Coverage and so no duty to defend or duty to indemnify either, the District Court held under West Virginia law in Grand China Buffett & Grill, Inc. v. State Auto Prop. & Cas. Co., 260 F. Supp. 3d 616, No.  1:16CV159, 2017 WL 2129307 (N.D. W. Va. May 16, 2017), appeal dismissed upon stipulated motion to dismiss, 2017 WL 6345716 (4th Cir. September 25, 2017).

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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).

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

PATIENCE, PEOPLE. CLAIMING SUBROGATION RIGHTS PREMATURELY IN PENNSYLVANIA: BAD FAITH?

In Gillis v. State Auto. Mut. Ins. Co., No. 2:16-cv-01285, 2017 WL 151637 (W.D. Pa. January 13, 2017), a U.S. District Judge in Pennsylvania held just like the title of this article says:

    In this declaratory judgment/bad faith action, the Plaintiff insureds sue their own insurance company, claiming that the insurer has jumped the gun by concretely stating/threatening to begin the pursuit of a subrogation claim before the Plaintiffs have resolved their own coverage claims with the insurer Defendant, and certainly before the Plaintiffs have resolved their excess/uninsured claims with the underlying tortfeasor. They also pile on a “bad faith” claim, asserting that the carrier's concretely stated intention to proceed with its subrogation claim now is “bad faith” entitling them to damages. The Defendant carrier responds with a Motion to Dismiss [ECF No. 7] the whole case, relying on its reading of Pennsylvania law for the conclusion that there is no problem with it proceeding with subrogation full steam ahead right now, and because it is allowed to do that, there can be no bad faith. The Motion to Dismiss will be denied without prejudice.

Gillis v. State Auto. Mut. Ins. Co., No. 2:16-cv-01285, 2017 WL 151637, at *1 (W.D. Pa. January 13, 2017).  The reason that the first-party insurance company's motion to dismiss was denied, including as to the policyholders' bad faith claim, was due in part to Pennsylvania law which does not look at the "make whole doctrine" in quite the same way as the Defendant insurance company:

[T]he Pennsylvania appellate courts are not nearly as certain as the Defendant is as to the reach and scope of the “make whole” rule. In Professional Flooring Co. v. Bushar Corp., 2016 WL 7105899, *7-9 (Pa. Super. Dec. 6, 2016), the Pennsylvania Superior Court did not limit the reach of the “make whole” rule to those circumstances in which the underlying tortfeasor had insufficient assets to cover both the subrogation claim and the claim by the tort victim for excess/uncovered losses. In reality, it stated both that the “make whole” rule was the law of the Commonwealth, and that it had no such limitation. Id.

    In light of the above, the Court concludes that it would be improvident to dismiss the declaratory judgment claim at this point in the proceedings. Further, in light of the matters set forth above, the Court at this juncture is not in a position to conclude that as a matter of law, the “bad faith” claim is wholly lacking in merit, and the Motion to Dismiss as to that claim will likewise be denied, without prejudice.

    The Defendant shall answer the Complaint on or before February 8, 2017.

Gillis v. State Auto. Mut. Ins. Co., No. 2:16-cv-01285, 2017 WL 151637, at *2 (W.D. Pa. January 13, 2017).

          So, until your jurisdiction definitively rules to accept, or to reject, the doctrine that subrogation cannot lie until the "subrogor" (in insurance cases, the policyholder/insured) is made whole, then asserting subrogation rights before their time may lead to an unwanted bad faith claim.  Patience, people.  There is plenty of time to assert subrogation rights later.

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

COMPELLING TESTIMONY FROM CORPORATE POLICYHOLDERS WHICH SUE FOR DEFENSE EXPENSES.

               Maronda Homes, Inc. of Florida is a homebuilder with thirty subsidiaries operating in five States.  Maronda obtained a commercial automobile insurance policy from Progressive Express Insurance Co.  There came a time when Maronda “and three other defendants” were sued for negligence by a person or persons injured in an automobile accident.

               It is unclear who the “three other defendants” were, but apparently Progressive provided all four (4) with a defense in the underlying case.  Maronda objected and Progressive hired a separate defense lawyer for Maronda.

               After the new lawyer advised Maronda that “’he would be reluctant to take positions in litigation that were adverse to Progressive because he did not want to jeopardize his business relationship with Progressive,’” Maronda declined the defense proffered by Progressive on the ground that the defense was “’legally insufficient.’”  Maronda then hired its own defense attorney to defend it in the underlying case.

               Maronda filed an action for declaratory relief, urging that as a result of these developments, Progressive had breached the liability insurance policy which Progressive issued to Maronda.  Maronda also requested that Progressive pay “damages consisting of the attorney’s fees and costs” which Maronda paid its personal defense counsel in the underlying case.  Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *1 (M.D. Fla. April 8, 2015)(Thomas B. Smith, USMJ).  It is not known whether the underlying case had concluded, although that result would not have affected the decision at bar.

               Progressive filed a motion to compel the deposition of one Gagat, Moranda’s and its subsidiaries’ vice president and controller.  Progressive sought “to depose Gagat concerning the allegedly inadequate defense it provided Maronda in the accident case”.    Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *4 (M.D. Fla. April 8, 2015).  After reviewing Florida law which is settled on the question, namely, that acting negligently in providing a defense is a breach of the insurance contract, and in this case although the Court did not say so it certainly appears to have been a question of law whether or not there was a breach, the Court stated aloud that “the Court does not know what Progressive hopes to accomplish by asking Gagat for his opinion of the adequacy of the defense it provided Maronda”.

               More specifically, Progressive wanted to know about “the ‘existence or non existence [sic] of communications that took place about the defense and claims for which Maronda Homes is now critical of Progressive.’”  The Court’s response to this reason was short and to the point:  “The Court will not speculate about what this is supposed to mean.”   Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *4 n.1 (M.D. Fla. April 8, 2015).

               Whatever Progressive hoped to accomplish by taking Mr. Gagat’s deposition may be unknown, “but that is not a reason to preclude Progressive from taking the deposition.”  The Court granted Progressive’s motion to compel Mr. Gagat’s deposition.  “Progressive may depose Gagat.”  Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *4 (M.D. Fla. April 8, 2015).

               Maronda opposed Progressive’s motion on several grounds, one of which was that in setting Mr. Gagat for deposition, Progressive was actually trying to set an impermissible “apex deposition”.  The Court in this case helpfully explained, for the benefit of those who, like me, had not heard the term before, that an apex deposition means “the deposition of a high ranking executive or principal in an organization.”   Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *2 (M.D. Fla. April 8, 2015).  The Court further explained how to support an “apex deposition” objection or, perhaps more accurately, how not to support it, because Maronda did not establish where Mr. Gagat fit within the corporation’s hierarchy, “and without this information, it is impossible to say whether Gagat is sufficiently senior in the company to be considered an apex witness.”  Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *3 (M.D. Fla. April 8, 2015).  It should be noted that not every “apex deposition” would be impermissible in all cases, because as the Court in this case pointed out, even if Maronda had established that Mr. Gagat was “apex,” under the circumstances of this peculiar case Mr. Gagat’s deposition would still be allowed.    Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *3 (M.D. Fla. April 8, 2015).

               There you have it.  A deposition of an officer of a large corporate policyholder suing for defense expenses was allowed to proceed even though it was at best unclear what if anything the officer could possibly say about “the adequacy of the defense” it was provided by its liability insurance carrier.  And an “apex deposition” objection is not enough, by itself, to stop a deposition from happening.  So says the Court in this Federal case in Florida.

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DJA as Statutory Bad Faith by Another Name.

          In the case of Mobley v. Capitol Specialty Ins. Corp., 2013 WL 3794058 (S.D. Fla. July 19, 2013), the U.S. District Court implicitly accepted jurisdiction over a Florida statutory bad faith action which was pled as a declaratory judgment action against a liability carrier.

          This may be the most repeated feature of the District Court's decision in this case, as it may be the most frequently cited proposition for which it stands in the eyes of other Courts (although a silent opinion, since the Court did not express an opinion about jurisdiction, the Court instead just simply exercised it).

 

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FIRREA IS NOT A FURRY CREATURE FOR D&O INSURER DJA.

          The Federal Deposit Insurance Corporation became the Court-appointed Receiver for Habersham Bancorp in Georgia.  In that capacity, the FDIC sued certain Habersham Directors and Officers to get back over $4 Million in losses based on "allegedly improper dividends" approved by the underlying defendants-Directors-and-Officers in violation of their Fiduciary Duties.  OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *1 (N.D. Ga. March 28, 2013).

          The Plaintiff issued a Management and Professional Liability Insurance Policy to Habersham under which the Directors and Officers could claim Coverage.  The Liability Insurance Company filed a Declaratory Judgment Action as a preemptive strike to obtain a declaration of no coverage for various reasons.  The D&O Defendants filed a Motion to Dismiss the DJA based on lack of Subject Matter Jurisdiction.  OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *2 (N.D. Ga. March 28, 2013).

          The Federal Court GRANTED the D&O Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction, and here's why.  The ruling is potentially significant to D&O Insurers seeking DJ's of no Coverage for bank Directors and Officers, as in this case.

          The D&O Defendants in this DJA based their no-subject-matter-jurisdiction argument on a Federal Statute which, of course, applies throughout the jurisdictions of the United States (and not just Georgia, where this case was filed):

D & O Defendants assert that Plaintiff's claim is precluded by Section 1821(j) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). (Def.s' MTD, Dkt. [33] at 7.) Under § 1821(j), “no court may take any action, except at the request of the Board of Directors by regulation or order, to restrain or affect the exercise of powers or functions of the [FDIC] as a conservator or a receiver.” At issue here is the FDIC's power to “collect all obligations and money due the institution” that has been placed into receivership. See 12 U.S.C. § 1821(d)(2)(B)(ii). The so-called “anti-injunction provision” (§1821(j)) was “intended to permit the FDIC to perform its duties as conservator and receiver promptly and effectively without judicial interference.”

OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *2 (N.D. Ga. March 28, 2013).

           Following the holding in a 2010 decision by the Northern District of Illinois, the Federal Judge in the Northern District of Georgia held in this case that a "preemptive determination of rights with respect to the D & O policy was jurisdictionally barred by Section 1821(j).  OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *3 (N.D. Ga. March 28, 2013).  The Federal Judge in Georgia elaborated:

   The FDIC Claim seeks to recover sums owed to the bank because of the D & Os' alleged wrongful conduct; if the FDIC succeeds, the D & O Coverage would help satisfy any judgment for the bank.  Section 1821(j)'s language is broad: “no court may take any action ... to restrain or affect the exercise of powers or functions of the [FDIC].” (emphasis added). According to the Eleventh Circuit, “[t]he exceptions to § 1821(j)'s jurisdictional bar are extremely limited.”  [Citation to Eleventh Circuit decision omitted here.] The Court finds that issuing a declaratory judgment on Plaintiff's claims would affect the FDIC's ability to collect money due to Habersham. Consequently, the claim is barred by § 1821(j).

OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *4 (N.D. Ga. March 28, 2013).

          The Plaintiff D&O Liability Insurer is not left without a remedy by this holding, however.  "Plaintiff's claims can be pursued through FIRREA's administrative process' authorized by Section 1821(d).  OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *5 (N.D. Ga. March 28, 2013).

          FIRREA is not a furry woodland creature for certain D&O Liability Insurance Companies.  This decision applies to bar DJA's apparently whenever the FDIC sues "insured" bank Directors and Officers to get the defunct banks' money back as an alleged result of the D&O Defendants' "Bad Faith" Breach of Fiduciary Duties.

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Regulators, Like People, Matter.

Two Heads Shaking From Louisiana: One Court's, One Party's.

    In two decisions rendered in the last two days, two Louisiana Appellate Courts issued head-shaking judgments.  Neither case involved reported allegations of Insurer Bad Faith.  Insurance practitioners will appreciate knowing about both of these decisions in any case.

    In State of Louisiana Patricia Bourque v. Essex Insurance Co., 2012 WL 832748 (La. Ct. App. 3d Cir. March 14, 2012), Download State of La. Patricia Bourque (La. Ct. App. 3d Cir. Opinions Filed 03.14.12) PUBLIC ACCESS, a Louisiana Appellate Court was fractured in its differing views.  Two judges dissented, and a third wrote a special concurrence.  The case was the fourth appearance on appeal; there were three previous Jury Trials.  In the present appeal, the Jury found against the Plaintiff.

    The dispositive issue on this appeal was whether the Plaintiff suffered an  injury as a result of an accident in the first place.  The majority held that the following Interrogatory Verdict was ambiguous, did not manifest the Jury's intent, and all in all was a nullity not to be considered even though the Plaintiff did not object to it in the case at bar:

In the case before us, for both the first and second trials, the jury only answered the first interrogatory. It read:

    Do you find, by a preponderance of the evidence, that an accident occurred  on or about August 19, 2002, injuring the plaintiff, Patricia Bourque?

YES _______ NO _______

In both trials, the jury selected “NO.”

    The deciding majority of the appellate panel in this case held that this was fundamental error, so that the Plaintiff's failure to object did not preclude appellate review.  Having reviewed the quoted Interrogatory Verdict, the majority, as noted, held in effect that it was a nullity and that it furnished no assistance in divining the Jury's intent. 

    So the Appellate panel majority issued its own Judgment in this case.

    The panel majority reviewed the record from the three previous Jury Trials, to the extent that the record had been transmitted to the Court of Appeals.  The Appellate panel majority announced their Verdict, er, Judgment upon announcing that they completed their review of the record on appeal.  Their Judgment is for the Plaintiff, which they announced as follows:

Next, given that the record was complete, we conducted a de novo review to adjudicate this matter. We found that Patricia Bourque carried her burden to prove that an accident occurred on August 19, 2002, that Donald Lack improperly installed the kitchen light fixture, and that she suffered damages as a result of that improper installation. We rendered judgment that awarded Patricia Bourque $452,689.78 in medical expenses, $250,000.00 in lost wages and future medical expenses, and $500,000.00 in pain and suffering and loss of enjoyment of life. All costs of these proceedings are assessed to Lack Construction, Inc. and Essex Insurance Company.

JURY VERDICT VACATED AND JUDGMENT RENDERED.

    In another case decided in a second Louisiana Court of Appeals, Mason v. Bankers Insurance Group, 2012 WL 833364 (La. Ct. App. 5th Cir., March 13, 2012), Download Mason v. Bankers Ins. Grp. (La. Ct. App. 5th Cir. Opinion Filed 03.13.12) PUBLIC ACCESS, a Homeowner's Insurance Company defended a Coverage case brought on account of damages and expenses caused to and by ruptured plumbing.

    First, the Defendant contended that there was no Coverage under the Homeowner's Policy in the first place, because the Policy only covers damage to a structure attached to a dwelling and a covered attached structure does not include plumbing, it said.  The Appellate Court disagreed.  Id. at *2-.

    Returning to a position presenting greater lucidity, the Defendant also argued that an Exclusion should apply to preclude all Coverage under the Homeowner's Policy in that case.  The Louisiana Appellate Court held that there were factual issues to be tried concerning the application of that Exclusion, and reversed the Trial Court's entry of a Summary Judgment of no Coverage accordingly.  Id. at *3-*4.

    As noted, neither of these decisions involved reported allegations of Insurer Bad Faith.  They are posted here because you will certainly find them interesting and you will also likely find them useful in any case.

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Catholic Inaction Unexcused And Settlement Without Coverage, No Bad Faith.

   A Catholic "priest, youth leader, and counselor" was the cause of a lawsuit for alleged sexual molestation which was filed against the Catholic Diocese of Savannah in South Carolina State Court.  The Diocese settled this underlying case before verdict.  It claimed insurance coverage under policies it purchased from Commercial Union Insurance Company.  Onebeacon America Insurance Co., as successor to Commercial Union v. Catholic Diocese of Savannah, 2011 WL 3878337 *1 (S.D. Ga. September 2, 2011)(authorized password required to access Westlaw).

   Commercial Union/OneBeacon filed suit over coverage before the Diocese did.  It requested a declaration of no insurance coverage.  The Diocese counterclaimed for alleged Bad Faith, in pertinent part, under OCGA § 33-4-6.

 As interpreted by a Federal Judge in this case in the Southern District of Georgia, "[u]nder that statute, if an insurer refuses in bad faith to pay a loss within an allotted time after demand has been made by the insured, the insurer becomes potentially liable for the loss, an additional percentage as a penalty, and attorney's fees."  Id. at *8.

   In this third-party Bad Faith case, there was no underlying verdict, and for that reason alone the Georgia Statute did not apply under the holding of this Federal Court.  Id.

   Moreover, Georgia law allows for a complete defense to Insurance Bad Faith where "'there is [sic] any reasonable grounds for an insurer to contest the claim'".  Id. at *9.  The U.S. District Judge concluded that that rule applied here.  For reasons discussed below, Commercial Union had no liability for insurance coverage in the underlying case.

   Further, there was no prejudice to the Insured from a 'delayed Declaratory Judgment Action'.  Id. at *3.  But even if the Insured in this case had been the victim of such prejudice, there still would have been no insurance coverage as a result of the prejudice and there was no waiver of the Insurance Company's defenses to coverage even if -- for the sake of argument, said the Federal Court in this case -- it had breached its duty to defend the Insured in the underlying liability case.  Id. at *5.

   Finally, the notice provisions in the policy at bar which established timely notice as a condition precedent to a valid claim to coverage, were violated as a matter of law in this case.  Id. at *6.  Delayed notice of 21 months was a greater period than any delay previously found unreasonable as a matter of Georgia law in any case.  Id. at *7.  The delay of 21 months to provide notice simply could not be excused by the Federal Court.

   The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida.  The author will be speaking including about recent cases involving issues surrounding Insurance Coverage Declaratory Judgment Actions.  Here is a link to the American Conference Institute Website Page which features this Conference including registration, if you or someone you know would like to attend.

   The link to the Georgia Statute was provided through www.georgiainsurancedefenselawyer.com.

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Rooker-Feldman Doctrine: It's a "Doctrine". So Attention Must be Paid.

   The Rooker-Feldman Doctrine was addressed in a case posted here on July 19, 2011, "Foreclosure Lawsuits Problems Attempt Overwhelming Courts:  No. 2, With Solutions".  In basic and simple terms, the "Doctrine" is a short-hand reference to the simple concept that there is only one Federal Court in which appellate review is possible of Judgments issued by State Courts, and that one Court is the United States Supreme Court.

   In an interesting twist of this simple concept, some Courts are acknowledging its existence as a "Doctrine" even in cases in which it has no place.

   Instead, calling the concept a "Doctrine" assumes that this simple concept has something like a life of its own.  In his decision in the case of Download Tri-State Truck Insurance, Ltd. v. First Nat'l Bank of Wamego (D. Kan. Case No. 09.4158, Memorandum and Order Filed August 3, 2011) PUBLIC ACCESS, also published as 2011 WL 3349153 (D. Kan. August 3, 2011)(authorized password required to access Westlaw), a Senior District Judge raised the Rooker-Feldman Doctrine on his own when the parties did not raise it.  The Federal Judge determined that the Doctrine did not apply in that case because the "Doctrine" does not apply to nonparties.  Tri-State Truck Insurance, Ltd. v. First National Bank of Wamego, 2011 WL 3349153 at *5 & n.9.

   Sometimes giving a simple concept a name like "Doctrine" almost infuses it with an imperative to pay attention to it even when the concept clearly has no place in the case at hand.  Parenthetically, the decision in that case involved competing Motions for Summary Judgment, one by the Plaintiffs in particular for a Declaratory Judgment and another by the Bank on its Claim for Breach of Contract.  The Plaintiffs' Motion was granted, and the Court directed the Clerk to enter a specified Declaratory Judgment including that the Plaintiffs did not breach their contractual obligations at issue in the case.  The Federal Court denied the Bank's Motion.

   All without dismissing a Federal Case based only on the fact that it involved previously entered State Court Judgments.

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When Filing a DJA does NOT Suspend Good Faith Duties.

   Filing a Declaratory Judgment Action -- even successfully obtaining a favorable Declaratory Judgment in the Trial Court -- in many jurisdictions effectively is or can be a shield of immunity against Bad Faith Claims.  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:5 (West Publishing Co., Third Edition scheduled for publication in July, 2011).  Further, obtaining a favorable Declaration, even if it is later overruled or reversed on appeal, can in some jurisdictions give rise to a Defense of Fairly Debatable Coverage as a matter of law.  See generally Wall, id., §§ 5:16, 5:51, 11:17.

   Not so in Arizona.  The Arizona Court of Appeals has held that "under the circumstances presented, an insurer that seeks a judicial interpretation of a disputed policy term may not ignore its claim-handling responsibilities while the declaratory judgment action proceeds."  In such a case, filing a Declaratory Judgment Action does not suspend Duties of Good Faith and Fair Dealing.  Download Lennar Corp. v. Transamerica Insurance Co. (Ariz. Ct. App., Div. 1, Dept B, Case No. 1 CA.CV 10.0141, Opinion Filed July 5, 2011) PUBLIC ACCESS, also published as 2011 WL 2673156 *1 ¶1 (Ariz. Ct. App., Div. 1, Dep't B, July 5, 2011)(authorized password required to access Westlaw). 

   "'It makes no sense that an insurer who asserts a coverage issue that, for any reason, withstands summary judgment, but ultimately fails, would be excused from all the good faith obligations imposed on the insurer who admits coverage.'"  Robinson v. State Farm Fire & Casualty Co., 583 So. 2d 1063, 1066 (Fla. 5th DCA 1991), quoted in Lennar Corp. v. Transamerica Insurance Co., 2011 WL 2673156 at *4, ¶ 17.  As the heading written by the Arizona Court of Appeals declared preceding this quotation:  "An Erroneous Grant of Summary Judgment Does Not Conclusively Establish That Coverage Is Fairly Debatable".  Id. at *3 - *4, ¶¶ 14 - 17.

   The law of Insurer Good Faith may or may not be similar in neighboring jurisdictions.  See, for example, "Kansas Still Recognizes Robust Bad-Faith Law, a Thing of the Past in Texas" posted on April 20, 2010 on "Law and Insurance / An Eye on What's Developing in Insurance Law and Practice" Blog.

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Louisiana Federal Court Applies Florida Law, Determines Refusal to Defend.

   In the Multidistrict Litigation case of In re FEMA TRAILER FORMALDEHYDE PRODUCTS LIABILITY LITIGATION, 2011 WL 381616 (E.D. La. January 25, 2011)(authorized password required to access Westlaw), a Federal Court in Louisiana was confronted with a Declaratory Judgment Action or DJA.  On the surface, the action would determine whether Northfield Insurance Company had a duty to defend its Policyholder, North American Catastrophe Services, Inc. ("NACS"), in an underlying lawsuit filed after Hurricanes Katrina and Rita passed through Louisiana in 2005.

   NACS was a broker "between FEMA and modular-home manufacturers in acquiring emergency housing units".  The units allegedly were loaded with formaldehyde fumes.  NACS was sued as a result.  Northfield had previously issued a Commercial General Liability Insurance Policy to NACS.  NACS demanded a defense from Northfield.  Northfield refused to defend NACS in the underlying litigation.  Id. at *1.

   As noted, Northfield had already denied any duty to defend NACS.  Although NACS's DJA was about the Northfield CGL Policy language, an affirmative determination of Northfield's duty to defend would also determine that its refusal to defend was wrongful and thus generally subject Northfield to the potential risk of so-called "bad faith" or extracontractual damages.  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §§ 3:46-3:59 (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement, Third Edition scheduled for publication in June, 2011).

   The underlying Plaintiffs alleged injuries that "were caused by formaldehyde fumes".  Id. at *6.  Under Louisiana's choice-of-law rules, Florida law would apply to the Insurance Coverage issue in this case, the Louisiana Federal Court held.  Id. at *9.

   The Northfield CGL Policy had a Total Pollution Exclusion and formaldehyde was inarguably an excluded pollutant.  Under Florida law, the Total Pollution Exclusion in Northfield's CGL Policy was unambiguous and applied to exclude all Coverage to NACS here, the Federal Court held:

   Based on Louisiana's choice of law provisions and prior jurisprudence, Florida law should be applied to the insurance contract at issue.  Under Florida law, it seems clear that the total pollution exclusion unambiguously excludes coverage for these claims.  See Deni Associates, 711 So. 2d 1135, 1138 (Fla. 1998)(finding the total pollution exclusion to be clear and unambiguous).  Thus, because Plaintiffs['] alleged injuries were caused by formaldehyde fumes, the Northfield policy does not apply, based on the Total Pollution exclusion located therein.  The exclusion should be enforced as written and coverage is precluded.

Accordingly, the Federal Court in this case denied NACS's Motion for Partial Summary Judgment on the Duty to Defend, and granted Northfield's Motion for Summary Judgment.  Id. at *9-*10.

   This lawsuit is not the only effort to resolve formaldehyde issues in FEMA Trailers left in Louisiana.  See also "Push is on to Rid Louisiana of FEMA Trailers" (Claims Journal Online, March 14, 2011).

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Reserves Discovery Irrelevant, Potentially Prejudicial to Hurricane Wilma Coverage Claim.

 

   In 1550 Brickell Associates v. QBE Insurance Corp.,  Download 1550 Brickell Associates v. QBE Insurance Corp. (S.D. Fla. Case No. 07.2283, Order Filed January 3, 2011) PUBLIC ACCESS, also published as 2011 WL 9506*1 (S.D. Fla. January 3, 2011)(authorized password required to access Westlaw), the Defendant Property Insurance Company filed a Motion in Limine to bar introduction of evidence of its "Indemnity Reserves" at Trial of a Hurricane Wilma Case.  The Defendant's Motion identified Indemnity Reserves as providing "a measure of the insurer's total expected exposure on a given claim based upon information known at that time and reasonable investigation."

   The Federal District Judge granted the Motion in Limine in this case.  The Claims going to Trial were for Breach of Contract and Declaratory Relief.  The Court viewed Reserves evidence as irrelevant.  Further, the Court held that evidence of Reserves in a Breach of First-Party Contract Case held the potential of impermissible prejudice in the absence of a Bad Faith Claim (which was still on appeal), 1550 Brickell Associates v. QBE Insurance Corp., 2011 WL 9506 at *3:

Even assuming evidence of Defendant's indemnity reserves is relevant, there exists a real danger such information would prejudice Defendant and potentially mislead the jury. The Court is not convinced that jurors would not equate Defendant's increasing reserve amounts with admissions of coverage. It could tend to inject a bad faith element into a simple breach of contract action. In addition, there is nothing in Bertucci's [an independent adjuster's] reports that explains the basis for the reserve calculations or why any changes in the amount were made. Thus, the there is a significant risk that evidence of Defendant's indemnity reserves would confuse the issues and mislead the jury. 

Discovery of Reserves information issues addressed by the reported Case Law is analyzed in Sections 8:6 (Third-Party Cases) and 12:16 (First-Party Cases) by Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Shepard's/McGraw-Hill Second Edition, West Publishing Co. 2010 Supplement).

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"Comparison Test" Eliminates Duty to Defend, Duty to Indemnify ...

... Will It Now Eliminate Also a Pending Claim Under the North Carolina Unfair and Deceptive Trade Practices Act, and a Pending Claim for Bad Faith?

   In ISS Research, LLC v. Federal Insurance Co., Download ISS Research, LLC v. Federal Insurance Co. (W.D.N.C. Case No. 3.10.CV.41, Order Filed November 18, 2010) PUBLIC ACCESS, also published as 2010 WL 4791891 (W.D.N.C. November 18, 2010)(authorized password required to access Westlaw), a Plaintiff Corporation alleged various Claims concerning a Commercial General Liability Insurance Policy and a Commercial Excess and Umbrella Insurance Policy issued to it by the Defendant.  The Policyholder-Plaintiff sought a Declaratory Judgment of Breach of Contract for alleged Wrongful Failure to Defend or Indemnify.  It also alleged "claims under the North Carolina Unfair and Deceptive Trade Practices Act and for Bad Faith."  ISS Research, LLC v. Federal Insurance Co., 2010 WL 4791893 at *1.  Both parties filed Motions for Summary Judgment based on the Plaintiff's request for a Declaratory Judgment.  Id.

   The Federal Court applied a test used by the North Carolina State Courts to determine whether a Liability Insurance Company has a Duty to Defend, known as "a 'comparison test'."  "Applying this test, a Court compares the allegations of the Complaint with the provisions of the insurance policy to determine whether the facts as alleged are covered or excluded."  Id. at *2.  Parenthetically, other jurisdictions employ the same test but some call it "a four corners test" or an "eight corners test".  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:48 (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement).

   Applying North Carolina's comparison test in this case, the Federal Court determined that there was no Duty to Defend or Indemnify concerning the Underlying Case, and granted Federal Insurance Company's Motion for Summary Judgment.  See id. at *2-*5.

   The Claims for alleged violations of the North Carolina Unfair and Deceptive Trade Practices Act, and for Bad Faith, remain pending in that case at this time.  In some jurisdictions, Coverage is not required in order to state a claim upon which relief can be granted, or in order to state a cause of action, either for alleged Bad Faith or for an alleged violation of an Unfair and Deceptive Practices Act.  See generally Dennis J. Wall, supra, § 3:100, and some Courts are following the same rule in First-Party Cases as well.  Id., § 9:25.

 Dennis Wall has handled many Insurance Coverage and Bad Faith Cases and Catastrophe Claims.  The author of this post, his next speaking engagement is on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010.  The author has also been advised by the American Conference Institute that the ACI is continuing to offer its discount to readers of this Blog:  Download ACI Advises Readers of the Insurance Claims and Issues and Insurance Claims and Bad Faith Law Blog are entitled to a discount.

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Expert Witnesses Allowed, Barred in Insurance DJ Over "Catastrophic Failure".

   The City of Chicago filed a Federal Declaratory Judgment Action against Westchester Insurance Company claiming Coverage for a "catastrophic failure" of an uninterruptible power supply ("UPS") which allegedly caused the City's entire 911 system to fail, in City of Chicago v. Westchester Fire Insurance Co., Download City of Chicago v. Westchester Fire Insurance Co. (N.D. Ill. Case No. 08C5535, Opinion and Order Filed September 1, 2010) PUBLIC ACCESS also published as 2010 WL 3516066 (N.D. Ill. September 1, 2010)(Westlaw subscription required to access Westlaw).

   In an illuminating Opinion that prefigures the same or similar Expert Witness issues in Insurance Cases yet to come involving Catastrophic Claims, the Federal Court denied Westchester Fire's motion to bar the Expert Witness Testimony of two witnesses as based on an incorrect methodology and as "speculative".  The Court held with respect to both Experts that their methodology was acceptable under Federal Expert Witness standards, and that their Reported Testimony and Opinions were not "speculative".  City of Chicago v. Westchester Fire Insurance Co., 2010 WL 3516066 at *7-*8.  One of these two Experts noted in his Report that the UPS system experienced a "catastrophic failure".  Id. at *7.  The Court noted in particular that this Declaratory Judgment Action will proceed to a Bench Trial.  Id. at *7.

   The City of Chicago also filed a Motion to Disqualify an Expert Witness in that case.  The City's Motion was granted in part as to Westchester Fire's Expert's proferred Opinions "related to the replacement of the UPS" because the Expert in question was simply not qualified "to testify about the City's decisionmaking process" regarding replacement of the UPS.  Id. at *6.  On the other hand, the City's Motion to Disqualify was denied regarding the proferred Testimony of this same Expert "as to his opinion that the City's temporary power system was a disproportionate response to the incident."  Id.

   These and similar issues as to the reception or rejection of various Expert Witness Opinion Testimony will arise again, in Insurance Cases pending and yet to be filed as a result of many Catastrophe Claims resulting from the Gulf Oil Explosion Disaster, and from other Catastrophes as well.

  The Insurance Questions including Business Interruption Coverage Issues have largely been experienced before, and they have in general terms been addressed by many Courts, in many decided Cases.  Dennis Wall is Co-Author of the leading book on Insurance Coverage for Catastrophe Claims, "CATClaims:  Insurance Coverage for Natural and Man-Made Disasters" (West Publishing Company 2008; 2010 Supplement in process).  Mr. Wall will be a featured speaker on several panels which will address the BP Oil Spill Catastrophe.  On September 15, 2010, he will be a featured speaker on a panel addressing "BP Oil Spill Damages Claims:  The Coverage Predicates" at the September 15, 2010 Seminar of the Insurance Law Committee sponsored by the Orange County Bar Association in Orlando, Florida.   Mr. Wall will speak on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010 on "Dealing With Catastrophic Disasters:  How to Properly Investigate and Handle Overwhelming Claims".  The American Conference Institute is offering a discount to readers of this Blog:  Download ACI Advises Readers of the Insurance Claims and Issues and Insurance Claims and Bad Faith Law Blog are entitled to a discount.

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No Federal Declaratory Judgment to Indemnify Pending State Court Lawsuit.

   In Colony Insurance Co. v. Nicholson, Download Colony Insurance Co. v. Nicholson (S.D. Fla. Case No. 10.60042.CIV, Order Filed July 19, 2010)FREE ACCESS also published as 2010 WL 2844802 (S.D. Fla. July 19, 2010)(Westlaw subscription required to access Westlaw), the Federal Court issued an Order reflecting holdings that were entirely predictable under Federal and Florida Law.  The  Nicholson Case was filed in Federal Court by Colony Insurance Company.  Colony requested a Declaratory Judgment of no Duty to Defend and no Duty to Indemnify its Insureds (who were two of the Defendants in its Federal Court Action, along with the Plaintiff in the underlying case) in a pending State Court Lawsuit.

   First, the Federal Court held in this Declaratory Judgment Action that there is a Duty to Defend the Insured in the pending State Court Case.   Nicholson, 2010 WL 2844802 at *3.

   Then, for the reason that the State Court Lawsuit is pending, the Federal Court refused to issue a Declaratory Judgment on the other issue presented to it, which was whether there is a Duty to Indemnify for any settlement or Judgment in the State Court Case.  Declaratory Relief on that issue would certainly be premature.  Since Florida Law always determines a Liability Insurer's Duty to Indemnify based on the actual facts rather than on merely the allegations which determine a Duty to Defend, the Federal Court held that the DJA was not ripe for Declaratory Relief on that issue.  Id. at *3.

   Accordingly, the Federal Judge granted the Defendants' Motion for Summary Judgment (which was originally filed as a Motion for Judgment on the Pleadings and was "converted" by the Federal Court into a Motion for Summary Judgment).

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Title Insurer Faces Bad Faith Claims, Remand From Federal Court.

   In Stewart Title Co. v. Investors Funding Corp., Download Stewart Title Co. v. Investors Funding Corp. (D. Haw. Case No. 09.00455, Opinion Filed May 11, 2010), also published as 2010 WL 1904981 (D. Hawaii Case No. 09-00455, Opinion Filed May 10, 2010) (Westlaw subscription required to access Westlaw), a tangled procedural history became easy to understand when a Federal District Judge remanded a title Insurance Company's Dec action to State Court.

   Investors Funding Corporation ("IFC") claimed that Stewart Title had issued a Title Insurance Policy that was intended to insure two properties, one located on Middle Street and the other located on School Street.  Persons named Chang filed a Foreclosure Lawsuit in Hawaii State Court on the Middle Street property.  The Foreclosure Lawsuit was removed to Bankruptcy Court when one of the Defendants filed for Bankruptcy.

   IFC demanded a defense and indemnity from Stewart Title.  Stewart refused, contending that the Title Insurance Policy listed only the School Street property and not the Middle Street property that was the subject of the Foreclosure-removed-to-Bankruptcy-Court action.

   IFC filed a third-party complaint against Stewart Title in the Bankruptcy proceeding.  "IFC asserts claims against Stewart Title sounding in negligence, gross negligence, breach of contract, and bad faith.  IFC [also] seeks reformation of the policy to include the Middle Street property ...."   Id. at *2.  [Emphasis added.]  The Bankruptcy proceeding was settled, at least in part, coupled with remand to Hawaii State Court of IFC's Bad Faith Action against Stewart Title. 

   Stewart Title responded to IFC's Bad Faith Action by filing a Declaratory Judgment Action in Federal Court.  Stewart Title asked for a declaration that, among other things, the subject Title Insurance Policy did not cover the Middle Street property, and that Stewart Title had acted in Good Faith.  Id. at *3.  The Federal Judge granted IFC's motion to dismiss based on abstention principles.

   The Federal Judge followed what is called Brillhart Abstention in the Federal Courts.  It is a doctrine named after Brillhart v. Excess Insurance Co. of America, 316 U.S. 941 (1942).  As interpreted and applied by the Federal Judge in the IFC case, that doctrine involves six (6) applied factors considered by Federal Courts asked to abstain from deciding cases that involve the same or similar issues allegedly presented in pending State Court Actions:

1.  Whether the Federal Action "Involves Needless Determination of State Law Issues."

2.  "Forum Shopping."

3.  Whether the Federal Action is "Duplicative" of the pending State Court Action.

4.  Whether "The Case Would Resolve Only Part of the Controversy."

5.  Whether the Federal Action "Would Clarify the Parties' Legal Relationship," and

6.  Whether the Federal Action "Creates the Possibility of Entanglement."

Id. at *5-*7.  In the IFC case, as noted, the Federal Court determined that these factors weighed in favor of dismissing Stewart Title Insurance Company's Federal Declaratory Relief Action in favor of IFC's previously filed Bad Faith Action pending in State Court.

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Federal DJA Abstention, No Bad Faith Attorney's Fees.

   In a recent Federal Court decision, the Judge was faced with a Complaint in two Counts:  First, alleged breach of contract based on a claim that Policyholder(s) breached an Insurance Policy's "cooperation clause," and second, for Declaratory Judgment.  The Complaint was filed by an Insurance Company against its Policyholders under a Commercial General Liability Policy and the Injured Claimant who sued them.

   The Defendants argued for abstention and for "Bad-Faith" attorney's fees under a Federal Statute, in pertinent part.

   First, the Federal Judge ruled on the breach of contract claim based on what the Federal Court viewed as settled Texas State Insurance Law that a breach of the cooperation clause does not provide the basis for a cause of action or a claim of breach of contract.  Download Evanston Insurance Co. v. Tonmar, L.P. (N.D. Tex. Opinion Filed November 5, 2009), attached Official Slipsheet Opinion at 12.

   Next, the Federal Court abstained from considering the Insurance Company's Declaratory Judgment Action.  Download Evanston Insurance Co. v. Tonmar, L.P. (N.D. Tex. Opinion Filed November 5, 2009), at 13-18.  The Court displayed seven (7) factors to consider in evaluating three (3) "key aspects" of the equation, "fairness, federalism, and efficiency".   "These factors are," said the Federal Court:

(1) whether there is a pending state action in which all of the matters in controversy may be fully litigated;

(2) whether the plaintiff filed suit in anticipation of a lawsuit filed by the defendant;

(3) whether the plaintiff engaged in forum shopping in bringing the suit; 

(4) whether possible inequities in allowing the declaratory plaintiff to gain precedence in time or to change forums exist;

(5) whether the federal court is a convenient forum for the parties and the witnesses;

(6) whether retaining the lawsuit would serve the purposes of judicial economy; [and]

(7) whether the federal court is being called on to construe a state judicial decree involving the same parties and entered by the court before whom the parallel state suit between the same parties is pending.

Download Evanston Insurance Co. v. Tonmar, L.P. (N.D. Tex. Opinion Filed November 5, 2009), at 14.

    Finally, the Federal Judge denied the request for "vexatious" and "unreasonable," i.e., "Bad Faith" Attorney's Fees, based upon the Court's holding of an insufficient showing.  Download Evanston Insurance Co. v. Tonmar, L.P. (N.D. Tex. Opinion Filed November 5, 2009), at 19-20.

 

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