Claims and Bad Faith Law Blog

STAY! HOW JUDGES JUDGE, A CASE EXAMPLE FROM NORTHERN CALIFORNIA.

An officially unpublished opinion issued by the Northern District of California offers a case study in how judges judge.  And so the opinion offers a case study in how successful practitioners practice.

According to Westlaw and Keycite, the decision is not cited by any other court in any other case.  Officially unreported and uncited.  A perfect example for our case study of a decision which nobody but the parties and their lawyers were watching.  We may be the only other people to review this decision.  The lessons it offers to practitioners are potentially priceless.

The District Judge in Perryman v. Litton Loan Servicing, LP, No. 14-cv-02261-JST, 2016 WL 1258584 (N.D. Cal. March 30, 2016) clearly followed established law in this opinion.  The judge's decision addressed Southwest Business Corporation's (SWBC's ) motion to stay a "putative class action" presenting lender force-placed insurance (LFPI) practices claims under a Second Amended Complaint.  Parenthetically, the court does not mention it in this opinion, but LFPI claims typically include alleged breaches of contract, breaches of fiduciary duties, and alleged "bad faith" claims usually including alleged breaches of the implied covenant of good faith and fair dealing.  So, SWBC's motion to stay the entire case may fairly be taken as a motion to stay these claims against all the defendants involved in the alleged practices involving insurance that was force-placed by a lender on a homeowner in this case.

SWBC filed motions to dismiss the original complaint and the First Amended Complaint before the Second Amended Complaint was filed.  Both previous times, the court granted SWBC's motion to dismiss.  Instead of filing a motion to dismiss the Second Amended Complaint, however, this time SWBC departed from its winning track record to file instead a motion to stay the entire case.

The judge approached SWBC's motion to stay with settled principles of law.  A motion to stay a case is discretionary with the trial judge.  As the court in this case summarized the law of stays, she or he is supposed to weigh the equities in the balance, evaluating the hardships on the party opposing the stay and on the party requesting the stay, and whether a stay would "simplify or complicate" the probable "issues, proof, and questions of law" that would result from a stay.  Perryman v. Litton Loan Servicing, LP, No. 14-cv-02261-JST, 2016 WL 1258584, at *1 (N.D. Cal. March 30, 2016).  This last factor seems to mean, in reality, whether the court as well as the parties would be prejudiced.

So, there's the background of deciding a motion to stay a case.  Here is how the district judge decided the motion in this particular case.  Unreported, uncited, yet available to the public.  But now, perhaps, more available to the public than ever before.

By examining the four factors of discretion which this District Judge wrote about in deciding a motion to stay a case, I do not mean to suggest in any way that the judge's conclusions were wrong.  As for the particular decision in this case, right or wrong the judge's conclusions govern the outcome of course.  I mean rather to take a look at the different factors involved from a distance, so to speak.  It may be that in other cases, perhaps in the same jurisdiction or perhaps even on the docket of the same judge, other answers may be suggested.

1. "First, it is unclear to the Court how Plaintiff will be prejudiced by a stay." It is true that weighing a court's discretion whether to grant a motion to stay an action involves considering hardship to the party opposing the motion if the case was stayed.  That certainly appears to be the governing law in the Circuit where this case was decided.  The District Judge was following that law in this case.

However, is that the right question?  Shouldn't the question be instead whether the party requesting a stay has shown good cause for getting one? 

In some sense, every case can be stayed because a plaintiff will hardly ever be in a position to prove that it would "not be prejudiced" if its claims were stayed.  Except of course that the claims would never see a courtroom if this reasoning were carried to that extreme.

2. "Second, continuing this action against SWBC solely because Plaintiff wishes to obtain discovery from SWBC regarding another defendant would prejudice SWBC by requiring SWBC to devote resources to respond to plaintiff's discovery requests, which resources SWBC would otherwise not be required to devote."

The plaintiff opposed SWBC's motion to stay her entire LFPI practices case because the claims she alleged included claims she presented in that case against one Litton Loan Servicing, LP.  She pointed out that Litton "'is not a party'" to either one of two settlement agreements, one in New York and one in Florida, which SWBC urged as reasons for a stay of this case in California.  The effect of granting SWBC's motion to stay the case in California on the basis of two cases in other jurisdictions which did not involve Litton, would mean that the plaintiff's claims against Litton would not be subject to discovery.  Instead, they would be deferred in the California case.   Even though Litton was not a party to either one of the settlements pending in New York and in Florida at the time.

Note that it was SWBC, not Litton, that filed a motion to stay the Second Amended Complaint in California.

With all respect, "devotion of resources" to respond to discovery requests seems like a lame justification, on the face of it, to stay an entire case.  Candidly, every civil case involves the prospect of "devoting resources" to discovery, yet that is not a good reason to dismantle any case.  It ought not to be a reason to support a stay of any case, either.

Finally, why do you suppose that SWBC changed its winning ways from successfully filing motions to dismiss the LFPI claims against it in this case, to filing instead a motion to stay?  The difference of course is that if SWBC prevailed on yet another motion to dismiss the LFPI claims alleged against it, then in that event SWBC would be dismissed (perhaps, this time, with prejudice) but Litton Servicing would remain in the case.

On the other hand, after SWBC's motion to stay the case including against Litton was granted, the claims against Litton theoretically were still in place but they were going nowhere.  One wonders why the result of a motion for stay was "better" for SWBC than being dismissed from the California case yet again, perhaps this time with prejudice.

3. "Third, as Plaintiff herself admits, 'it would be inefficient to continue this litigation against [SWBC] pending the resolution of settlement proceedings'" in the cases in New York and Florida.

Perhaps this statement was taken out of context a little.  Or perhaps I misunderstand it.  If I understand it correctly, what the Plaintiff was saying is that it would be inefficient to grant the stay motion, effectively granting a continuance in the case, and not that it would be inefficient to deny the stay motion.

The court quoted another statement of the Plaintiff in a footnote:  "While 'Plaintiff does not concede that SWBC is released under the [Florida] settlement[,] ... for the purposes of this motion, Plaintiff does not oppose staying this case as to SWBC (with the exception of discovery relevant to Litton)....'"  Perryman v. Litton Loan Servicing, LP, No. 14-cv-02261-JST, 2016 WL 1258584, at *2 n.1 (N.D. Cal. March 30, 2016).

This further statement may present a cautionary tale to practitioners.  The Plaintiff's attorneys were clearly attempting to offer a compromise in making this statement, yet this attempt may have been viewed instead as an "admission."

4. "Finally, as SWBC notes in its motion, 'if a legitimate need for discovery arises in the future ... [the Plaintiff] is free to present good cause to the Court for relief from the stay.'"

It is legitimate to ask, it seems, why should the party opposing a stay in the first place, be required as a matter of law to "present good cause" to lift the stay in the future?  Why should not the burden of proof, if proof is indeed involved, not be placed on the party that sought the stay in the first place, to keep it in place, as a matter of law?

The fact is, of course, that in this case as in many cases, practitioners will note how judges may judge, and therefore how practitioners may successfully practice.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall.  All Rights Reserved.

RELEASED FOR THE HOLIDAYS! BAD FAITH, Coblentz, & VERDICT FORMS!

In an opinion just released on Westlaw, Jimenez v. GEICO, No. 6:10–cv–640–Orl–37KRS, 2015 WL 12844296, at *4 (M.D. Fla. April 28, 2015) (italics in original), the Court wrote:

The Eleventh Circuit has specifically found that question two of the verdict form—“Do you find the consent judgment entered into by [Antonio James Jimenez] was reasonable in amount and not tainted by bad faith, fraud, collusion or without any effort to minimize liability?”—is an accurate statement of Florida law and has upheld the use of the question as a special verdict form interrogatory.  Mid-Continent Cas. Co., 534 Fed. Appx. at 928 (upholding use of the Special Verdict Form Interrogatory and explaining that “Florida law could not be clearer as to the elements necessary to enforce a consent judgment. Subsequent to the entry of the agreement, the injured party must bring an action against the insurer and prove coverage, wrongful refusal to defend, and that the settlement was reasonable and made in good faith.”)....  The special interrogatory question on the verdict form has specifically been approved by the Eleventh Circuit for use in bad faith claims involving Coblentz agreements. See id.

Parenthetically, once again a Federal Court in Florida insists on calling a consent judgment with an assignment of bad-faith rights a "Coblentz" agreement in any case in which the liability carrier refuses to defend.  The name comes from a case decided by a Federal appellate court:  "In Coblentz v. American Surety Company of New York, the Fifth Circuit held that 'if a liability insurer is informed of an action against its insured, but declines to defend the insured, the insurer may be held to a consent judgment entered in that action, absent fraud or collusion.'  416 F.2d 1059, 1062-63 (5th Cir. 1969)."  Jimenez v. GEICO, No. 6:10–cv–640–Orl–37KRS, 2015 WL 12844296, at *1 n.1 (M.D. Fla. April 28, 2015).

Please Read The Disclaimer.  ©2016 by Dennis J. Wall.  All Rights Reserved.

A CONSENT JUDGMENT AGAINST A LIABILITY INSURER: A SPECIAL CASE.

A liability insurer has a special defense against a consent judgment by its insured and a claimant.  In most such cases filed in U.S. jurisdictions, the liability carrier can collaterally attack the consent judgment or other allegedly conclusive underlying settlement by putting on proof that the underlying judgment or settlement was itself the product of fraud, collusion, or "bad faith."

Such was the defendant liability carrier's defense against a bad-faith lawsuit filed under Nebraska law in Metropolitan Prop. & Cas. Ins. Co. v. Westport Ins. Corp., 131 F. Supp. 3d 923 (D. Nebr. 2015).

Nebraska law follows the clear majority if not unanimous rule that the burden of proof is on the liability carrier to prove its defense in such a case, and notwithstanding, that the insured "may be required to make a prima facie showing that the settlement was entered into in good faith and that the amount of the settlement amount [sic] is reasonable."  Metropolitan Prop. & Cas. Ins. Co. v. Westport Ins. Corp., 131 F. Supp. 3d 923, 929-30 (D. Nebr. 2015).  On the facts recited in incredible detail throughout the Court's opinion in that case, the Court agreed with the plaintiff that a sufficient prima facie showing had been made.  The Court accordingly denied the liability carrier's motion for summary judgment on its defense of collusion in that case.

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

BAD FAITH IN SETTLEMENT LIMITATIONS BEGIN WHEN EXCESS JUDGMENT IS FINAL.

Following the majority view in this country, the Supreme Court of Delaware has held that a claim for bad-faith-in-settlement accrued, and the limitations period began to run, when the excess judgment against the insured became final and non-appealable.  Connelly v. State Farm Mutual Automobile Insurance Company, 135 A.3d 1271, 1281 (Del. 2016).

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with Supplements).  You are invited to visit the author's website here.  All rights reserved.

ABSOLUTE TEST FOR LIABILITY POLICY PROVISION BANNING UNAUTHORIZED SETTLEMENTS.

A divided court confronted a liability insurance policy provision banning unauthorized settlements in a case presenting bad faith claims alleged against the liability carrier.  The differences between the majority and the dissent mirror the differences between the skiing patrons of Vail and the rugged residents of Colorado Springs.

A majority of the Colorado Supreme Court held that the carrier did not need to support its defense with proof that it was prejudiced by the policyholder's alleged violation of a clause in its liability policy which bars any insured from settling claims without the liability carrier's consent.  The defendant carrier needed to show only that the clause was violated in order to prevail on that defense.  A majority of the court declined to superimpose a "prejudice" requirement similar to the prejudice requirement in late notice cases, for example.  The majority called the provision "the no-voluntary-payments clause of the policy in this case."  Travelers Prop. Cas. Co. of Am. v. Stresscon Corp., 370 P.3d 140, ¶ 11, at 143  (Colo. 2016).

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with Supplements).  See in particular Volume 1, § 5:14, which addresses "Coverage or policy defenses" to third-party bad-faith-in-settlement claims.  You are invited to visit the author's website here.  All rights reserved.

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Bad Faith Without Coverage: Washington State and the United States.

SOUTHERN DISTRICT OF FLORIDA CASE PRECEDENT:  A LOOK AT THE facts.

Happy St. Patrick's Day!

On the facts in the pending case, Lowe v. Loancare, LLC (S.D. Fla. No. 1:15-cv-23700-KMM), declarations filed by the defendants do not appear to attach any documents with an Insurance Commissioner's "APPROVED" stamp on the insurer's rate filing.  The same lawyers representing defendants in the Lyons case in New York filed that kind of proof there.  For that reason alone, Lyons of New York is not precedent for applying the filed rate doctrine in the Lowe case in Florida.

The declarations filed in the Lowe case do not present documents that tend to prove that the Florida Office of Insurance Regulation approved an insurance carrier's filing for an insurance premium rate.  Instead, the declarations filed by the defendants in Lowe present testimony that the Florida Office of Insurance Regulation approved insurance rate requests filed by the insurance carrier involved, American Security Insurance Company or "ASIC," including in 2013.

The Florida Office of Insurance Regulation disapproved and rejected a rate request filed by the insurance carrier involved, ASIC, including in 2013.

The evidence of ASIC's filed rate requests for approval of its insurance premiums in Florida -- including ASIC's filed rate request that was denied and rejected by the Florida Office of Insurance Regulation -- is easy to find, including rate requests filed by ASIC seeking approval of its insurance premium rates for 2013.

The evidence is in the public record.  It is included in four pages in Chapter 6, n. 35, of my book on Lender Force-Placed Insurance Practices published by the American Bar Association in 2015. 

In conclusion, based on the law that applies to the claims and defenses in Lowe, and on the facts in the record in Lowe, there is much for the Chief Judge of the Southern District, the Honorable K. Michael Moore, and the U.S. Magistrate Judge on the case as well, the Honorable Chris M. McAliley, to consider before issuing what will probably be a short order refusing to grant a motion to dismiss based on the filed rate doctrine in another insurance case pending in the Southern District of Florida, Lowe v. Loancare, LLC (S.D. Fla. No. 1:15-cv-23700-KMM).

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  The recent defense of the Filed Rate Doctrine in insurance cases is addressed by itself in a new Section § 11:26 in 2016.  All rights reserved.

SOUTHERN DISTRICT OF NEW YORK PRECEDENT IN SOUTHERN DISTRICT OF FLORIDA?

Image copyright 2016 by Dennis J. Wall.  All rights reserved.

Happy St. Patrick's Day!

We start today with a question:  Why is the Lyons case decided in the Southern District of New York important to a case pending in the Southern District of Florida?

The answer is:  Because Lyons relies on a panel decision of the Second Circuit Court of Appeals.  The judge in Lyons had to rely on the Second Circuit because that judge's District Court is in the Second Circuit.  District Judges in the Second Circuit have to obey the Second Circuit.  So the Lyons judge relied on the discredited Rothstein decision of a Second Circuit panel in July, 2015.    See Dennis J. Wall, "Force-Placed Insurance / Filed Rate Doctrine Imported From Utilities Regulation to Insurance Law / Second Circuit Court of Appeals Panel Applies Doctrine to Texas, New Hampshire, and New York Lender Force-Placed Insurance Practices / Rothstein v. Balboa Insurance Co., 794 F.3d 256 (2d Cir. 2015), 37 Insurance Litigation Reporter 435 (October 6, 2015).  A reprint of this publication © Thomson Reuters, reprinted with permission, is available at www.lenderforceplacedinsurance.com.

A District Judge in a previous Southern District of Florida case also relied on the Second Circuit panel decision in Rothstein.  The Florida judge's court is not in the Second Circuit and the Florida judge did not have to obey the Second Circuit panel; he chose to.  The previous case is Trevethan v. Select Portfolio Servicing, Inc.

The defendants have accordingly cited Trevethan and filed copies of Rothstein and Lyons to persuade yet another District Judge, the Chief Judge of the Southern District, the Honorable K. Michael Moore, and the U.S. Magistrate Judge on the case as well, the Honorable Chris M. McAliley, to apply the filed rate doctrine in another insurance case pending in the Southern District of Florida, Lowe v. Loancare, LLC (S.D. Fla. No. 1:15-cv-23700-KMM).

Next we take a look at the dispute on the law in the context of the pending Southern District of Florida case, followed by a look at the facts in the same context.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  The recent defense of the Filed Rate Doctrine in insurance cases is addressed by itself in a new Section § 11:26 in 2016.  All rights reserved.

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THE LESSONS OF Lyons, FROM SOUTHERN DISTRICT TO SOUTHERN DISTRICT.

IS NEW YORK'S SOUTHERN DISTRICT FLORIDA'S SOUTHERN DISTRICT, TOO?

Florida field.  Image copyright by Dennis J. Wall.  All rights reserved.

We left off our discussion of Plausible Complaints and imPlausible Judgments noting that the judge who wrote the opinion in the Clarizia case in the Southern District of New York attached a copy of his slipsheet opinion in the earlier case of Lyons v. Litton Loan Servicing LP, No. 1:13-cv-513 (ALC)(GWG), ___ F. Supp. 3d ___, 2016 WL 415165 (S.D.N.Y. February 2, 2016).  Lyons is a useful example of everything Clarizia and Rothstein are not.

The defendants filed declarations with attached documentation that they said reflected "APPROVED" file-stamps of the Florida Office of Insurance Regulation of their relevant premium rate filings.  The defendants argued that this "evidence" was "undisputed."  Without arguing here whether the evidence was admissible and so whether it was legally sufficient to support an ultimate judgment of dismissal with prejudice, the procedures on display in Lyons show how the filed rate doctrine should be argued and applied in an insurance case, if at all.

The defendants in Lyons came forward with both testimonial and documentary evidence to support their filed rate doctrine affirmative defenses.  The plaintiffs for whatever reason did not appear to rebut any of this evidence.  I could not find any rebuttal evidence in the record from my review of the Lyons Electronic Court File on PACER.  I do not mean that the plaintiffs filed materials in rebuttal and that in my humble opinion those materials were legally insufficient; I mean that I could not find any materials filed in rebuttal.

This seems to be the reason that the Court did not mention any materials filed to rebut the defendants' filed rate showing when the Court entered its Order granting the defendants' motion to dismiss plaintiffs' claims because of the filed rate doctrine.  There weren't any.

Next:  The lessons Lyons teaches.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015).  All rights reserved.

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IN NEW YORK'S SOUTHERN DISTRICT, NOBODY DARES ASK QUESTIONS.

IN NEW YORK'S SOUTHERN DISTRICT, NOBODY DARES ASK QUESTIONS Clarizia III.

Courthouse, Newburgh, New York.  Image courtesy of New York Public Library.

This article continues the last previous series installments published on Insurance Claims and Issues Blog on Wednesday, March 9, 2016.  Here they are, in order: one, two, and three.

Just as the Clarizia defendants relied only on Rothstein and not on the record, so the District Judge relied on Rothstein and not the record.  The Court in Clarizia dismissed the lender force-placed insurance claims at issue and directed the Clerk "to terminate this case."

As the defendants attached a copy of the Rothstein case to their letter in Clarizia, so again the judge in Clarizia attached to his opinion a copy of his own opinion in a previous case, Lyons v. Litton Loan Servicing LP.

The next article in this series will explain why Lyons v. Litton Loan Servicing LP was recently raised in a case in South Florida by the same lawyers who successfully wrote a letter to  a judge asking the judge to dismiss Clarizia in Southern New York.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015).  All rights reserved.

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Bank's Alleged Bad Faith Withholding New Jersey Fire Insurance Proceeds.

REPLACING PERHAPS INSUPPORTABLE COMPLAINTS WITH DEFINITELY UNSUPPORTED JUDGMENTS

 

Appellate Courthouse in New York City (Second Circuit).  Image courtesy of New York Pubic Library.

To recap a discussion that was started here on Thursday, March 3, 2016:

The old notion about lawsuits was that people and some businesses filed complaints for no good reason.  The lawsuits and the people who filed them were mostly thought of as frivolous.  They served no purpose, it was thought, other than to cost the defendants time and money.

Today lawsuits are judged by whether the judge thinks the lawsuit is "plausible" from the beginning.  This test was thought up by a Federal judge, naturally.  "Plausible" means not just "possible" but whether a judge thinks that the lawsuit is "believable," somewhere between the merely "possible" and the definitely "probable" (although the opinions expressed by judges in decided cases are much closer to declarations that the judges have to be convinced that the lawsuit is believable meaning probably true, or they will throw out the lawsuit).

Using this subjective procedure, perhaps insupportable complaints have been replaced by definitely unsupported judgments.

Under the plausibility test, again meaning whether a judge thinks that a complaint or a lawsuit has a believable if not probably true story to tell, plaintiffs and defendants both can file exhibits either to show the judge that the complaint is plausible, or to show the judge that it is not.

This is what happened in an insurance case in which the defendants raised an affirmative defense called the filed rate doctrine.  When we started this discussion, we promised that we would illustrate how the plausibility test determines outcomes, by taking a look at how judges look at motions to dismiss insurance cases because of the filed rate doctrine.

In Rothstein v. Balboa Insurance Co., 794 F.3d 256 (2d Cir. 2015), the defendants filed their motion to dismiss and they filed exhibits to show the trial judge that the force-placed insurance complaint in that case was just not plausible.  The trial judge still thought that the complaint was plausible anyway.  The appellate judges thought otherwise, and reversed with directions to grant the defendants' motion to dismiss the complaint because of the filed rate doctrine.  Judgment for the defendant on a motion to dismiss.

The appellate panel unfortunately was mistaken in what the defendants' exhibits said about the law of one state, New Hampshire.  The appellate panel misread the exhibits to reflect the opposite of what the New Hampshire Insurance Commissioner had to say.  See Dennis J. Wall, "Force-Placed Insurance Rothstein v. Balboa Insurance Co. (2d Cir.)," 37 Insurance Litigation Reporter 435 (October 2015), available for download at www.lenderforceplacedinsurance.com.

However, the appellate panel did not say what they thought the exhibits revealed about the law of the other two states at issue in that case, namely, New York and Texas.  For the panel, although not for the trial judge it bears repeating, it was enough to dismiss the complaint based on the defendants' allegation that the complaint was implausible and the defendants did not apparently have to do any more than say so.

At any rate, that is all that the appellate panel needed to hear before they ordered the complaint dismissed, i.e., that the defendants said that the complaint was implausible under the filed rate doctrine.

Was the appellate panel correct in not looking to whether the state laws at issue would authorize the filed rate doctrine defense to be applied?

Or is more required to prove that the filed rate doctrine defense applies than was required in Rothstein, at least on appeal?

In further articles, we will take a look at the answers to those questions.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015).  All rights reserved.

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IGNORANCE OF THE FILED RATE LAW IS NO EXCUSE … YOUR HONOR.

WHEN "PLAUSIBLE" LAW MEANS "imPLAUSIBLE" JUDGMENTS.

The "plausibility" standard determines whether a complaint in Federal Court states a claim upon which relief can be granted.  The results of applying that standard have not received much discussion.  They should receive more attention than they and the "plausibility" standard have gotten.  One of the only known treatments of this topic is in a recent blog post by Dennis J. Wall & Casey Hall, "Changing Plaintiffs' Standard Gives Defendants Cheap Judgments:  Unintended Consequences?" Thomson Reuters Legal Solutions Blog, posted February 24, 2016.

The old notion that somehow "implausible" complaints survived in Federal Courts has been replaced with the present reality that implausible judgments are often -- "regularly" may be nearer the truth of the matter -- given to the other side of the litigation. 

When current judges think that claims are "implausible," the claims are dismissed with prejudice.  Experienced practitioners know that judges generally allow a plaintiff to amend at least once even after the defendant files its answer, but this is not always followed in cases applying the "implausibility" standard of jurisprudence.

Courts enter a final judgment and direct the clerk to close a case each time they dismiss a complaint with prejudice.  This means of course that the plaintiffs have no opportunity thereafter to amend to even try to allege a claim which the given judge sees as more "plausible." 

This procedure is illustrated by the constantly increasing results in an equally increasing number of insurance cases in Federal Courts.  In these cases, defendants raise the filed rate doctrine in motions to dismiss the complaints as "implausible."

The FRD originated in utilities regulation.  There, it is an affirmative defense.  As an affirmative defense, the FRD has required defendants who raise it, to meet their burdens of proof on several elements.

One element which must be proven in utilities cases is that the rate in question was approved by a regulatory agency which was given the statutory power to approve the rate.  The power to approve a rate request involves the power to require a lesser rate.  It also involves the power to require certain documentation and other evidence, among other things.

Another element which must be proven in utilities cases is that the utility filing the rate request is required to address certain issues and submit listed documentation, all of which are identified in applicable statutes and regulations.  In Florida, for example, insurance rate filings are governed both by Statute and by Regulation.  This required element of proof was more fully addressed in previous articles here, here, and here.

In contrast to the law applied in utilities regulation matters, courts faced with insurance and other cases often fail to require any proof that the filed rate doctrine applies at all.  Perhaps the judges simply do not know how to apply the FRD in an insurance case, the doctrine having been imported from utilities regulation.  In any event, this lack of proof does not prevent judges from entering judgments based on the FRD in insurance cases.

The decided cases will be examined here in a forensic investigation never before conducted, so far as is known.  More than that, the results of that forensic examination will be put on display for you to see for yourself.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  All rights reserved.

KANSAS LIMITATIONS ON INSURANCE CLAIMS.

It was held in B.S.C. Holding, Inc. v. Lexington Ins. Co., 625 F. App'x 906 (10th Cir. 2015), that Kansas law would require enforcement of a clearly stated one-year limitations period in a commercial insurance contract even without a showing of prejudice by the carrier.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  See in particular § 5:20 in Volume 1.  All rights reserved.

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PREEMPTIVE MOTION GRANTED STRIKING INSURANCE CLASS CLAIMS, BUT AMENDMENT ALLOWED.

Although the District Court granted the insurance company's motion to strike class claims from the complaint at the pleading stage in Hockenbury v. Hanover Ins. Co., No. CIV-15-1003-D, 2016 WL 552967, at *3 (W.D. Okla. February 10, 2016), the Court also gave the plaintiff leave to amend his complaint to allege a more plausible class if he could.

The Court in that case held that to rule otherwise would be "premature, at this juncture":

Nonetheless, the Court is not convinced Hockenbury is or will be unable to establish facts that would make class treatment appropriate; therefore, he is granted leave to amend his class allegations….  [T]he Court believes it is not practical to address [Hanover's substantive] arguments at this stage of the litigation, where an ascertainable class has not even been properly defined.

Hockenbury v. Hanover Ins. Co., No. CIV-15-1003-D, 2016 WL 552967, at *4 (W.D. Okla. February 10, 2016).

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  All rights reserved.

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THEY WERE AGAINST IT BEFORE THEY WERE FOR IT: Fladell, THE SECOND PART.

"PLAUSIBILITY" AND PREEMPTIVE MOTION TO DENY INSURANCE CLASS CERTIFICATION.

A Federal Court in Oklahoma granted an insurance company's preemptive motion to strike all class claims from the complaint filed against it.  By filing its motion to strike, the insurance carrier defendant effectively sought to deny class certification at the pleading stage.

The District Court granted the insurance company's motion to strike in that case but withheld decision on whether the insurance company or the policyholder had the burden of proof at that stage.  The Court granted what it described as the insurance company's preemptive motion because whether the insurance company or the policyholder bore the burden of proof, "Hanover's motion should be granted …."  Hockenbury v. Hanover Ins. Co., No. CIV-15-1003-D, 2016 WL 552967, at *3 (W.D. Okla. February 10, 2016).

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  All rights reserved.

INSURANCE CLASS ACTION HELD OVERBROAD AS PLED BUT AMENDMENT GRANTED.

In the case of Hockenbury v. Hanover Ins. Co., No. CIV-15-1003-D, 2016 WL 552967, at *1, *4 (W.D. Okla. February 10, 2016), a Federal Court in Oklahoma granted the insurance company defendant's motion to strike all of the alleged class action claims.  Mr. Hockenbury's claims were essentially bad faith and breach of contract claims.  They included allegations of failure to investigate and underpayment of claims.

Regarding class claims, Mr. Hockenbury alleged a proposed class of

… [a]ll persons who submitted claims to HANOVER for property damage under homeowners or commercial policies issued in or covering property in the state of Oklahoma at any time after February 1, 2009 ….

In the eyes of the District Court, "[t]his proposed class definition is overbroad and unworkable." 

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  All rights reserved.

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Class Action Settlements Become Legalized Weapons of Mass Destruction.

PLEADING AND PROVING FILED RATE DOCTRINE IN INSURANCE CASES: PART 1.

Courthouse in Newburgh, New York.  Image courtesy of the New York Public Library Collection.

 

Most courts hold that the filed rate doctrine is an affirmative defense.  Other courts hold a minority view that the filed rate doctrine is inherent in subject-matter jurisdiction.  The confusion is understandable.  Judges in cases subject to the doctrine must decline to exercise jurisdiction in deference to regulators empowered to review and decide rate filings.

Either way, whether viewed as an affirmative defense or as an attack on subject-matter jurisdiction, the judges all agree that the party raising the filed rate doctrine has the burden of proving it.

This means evidence of course.  In Florida, for example, in cases involving one of the larger force-placed insurance carriers, American Security Insurance Company ("ASIC"), the Florida Office of Insurance Regulation, i.e., Insurance Commissioner's Office, actually denied ASIC's rate request in a rate filing ASIC filed in support in 2013.  I filed comments in the rate filing proceeding in which which the O.I.R. denied ASIC's request for another rate increase. 

To be continued.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015).  All rights reserved.

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FLORIDA and LENDER FORCE-PLACED INSURANCE PRACTICES WIND 2016

Coblentz AGREEMENTS IN FLORIDA EXPLAINED AND APPLIED.

Image via Shepard's/McGraw-Hill.

"Coblentz agreements" are named after Coblentz v. American Surety Co., 416 F.2d 1059 (5th Cir. 1969).  In many other jurisdictions they have other names, including generic titles such as consent judgments, but particularly in South Florida they are called Coblentz agreements, and they are special.  They are valid only after a liability carrier has denied all coverage.

Moreover, in order to prevail under one of these agreements for a recovery in excess of liability policy limits, the crucial issue in the resulting "bad faith" case is whether the carrier's denial of coverage was wrongful.

An explanation and application of Coblentz agreements were offered by an appellate panel of the Federal Eleventh Circuit Court of Appeals in a case involving Florida substantive law:

Coblentz agreements permit an insured to “enter into a reasonable settlement agreement with the [plaintiff] and consent to an adverse judgment for the policy limits that is collectable only against the insurer.”  Perera v. United States Fid. & Guar. Co., 35 So. 3d 893, 900 (Fla. 2010).  If a plaintiff wishes to recover in excess of the policy limits, the plaintiff must establish that the insurer acted in bad faith in wrongfully denying coverage.

Garcia v. GEICO General Ins. Co., 807 F.3d 1228, 1230 n. 1 (11th Cir. 2015).

 Since the crucial issue in the case was whether the carrier's denial of liability insurance coverage was wrongful, the panel held that the carrier was entitled to put on evidence that its coverage decisions were reasonable, and to put on evidence, specifically, of coverage decisions by the Florida Courts that supported the carrier's coverage decisions at the time the carrier made those decisions.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements).  The Garcia case is a good illustration of the rule predicted in § 5.26 that a defense of "Fairly or reasonably debatable claim" for an allegedly wrongful denial of coverage should be permitted by the Courts on the overall issue of "wrongful" denial of coverage, i.e., on the issue of "bad faith" in a Coblentz context.   As the appellate panel decided in Garcia, evidence should be admitted on the central issue of whether the liability insurer's resolution of an uncertain legal conflict over policy interpretation was reasonable at the time the coverage decision was made, even though the liability carrier's resolution of that issue is judicially determined later to be the wrong answer to the question.  All rights reserved.

FILED RATE DOCTRINE IS A FARCE IN INSURANCE CASES.

 

 

Recent decisions in insurance cases have permitted the introduction of an affirmative defense as a reason for dismissal of a complaint.  The decisions have come principally if not exclusively in lender force-placed insurance ("LFPI") cases.  The arguments in these cases spotlight many of the reasons that the filed rate doctrine does not belong in insurance cases of any kind.

A recent illustration was previously commented on November 12, 2015:  Trevathan v. Select Portfolio Servicing, Inc., No. 15-61175-CIV-DIMITROULEAS/SNOW, 2015 WL 6913144 (S.D. Fla. November 6, 2015).  A few more comments are in order here.

It will be recalled that as posted here on November 12, the holding in this recent LFPI case was that since the premium "rate" charged by the insurance company defendant in that case for lender force-placed insurance was previously "filed" and approved by the Florida Office of Insurance Regulation ("OIR," the equivalent of a Florida Insurance Commissioner), then the filed rate doctrine applied and barred all of the plaintiff's claims involving "inflated premiums," i.e., premiums charged as part of a kickback scheme.

That might be a valid holding on a motion for summary judgment after a fully developed record of fact.  That is not this case.  The November 6th holding was on motions to dismiss.  The District Judge apparently did not like any of the plaintiff's claims; the Court dismissed all of them.  The plaintiff's "inflated premium" claims were dismissed with prejudice.  (After a review of the dismissed complaint on PACER, "Public Access to [Federal] Court Electronic Records," I have to admit that I am at a loss as to which of the alleged claims is an "inflated premium" claim since I did not find any claims that were alleged as such.)

The Court's decision to dismiss with prejudice under the filed rate doctrine was based on an Eleventh Circuit decision in a utilities regulation case.  The Eleventh Circuit said in that case:

As it applies in the telecommunications industry, the filed rate doctrine dictates that the rates a carrier charges its customers, once filed with and approved by the FCC, become “the law” and exclusively govern the rights and liabilities of the carrier to the customer:

Not only is a carrier forbidden from charging rates other than as set out in its filed tariff, but customers are also charged with notice of the terms and rates set out in that filed tariff and may not bring an action against a carrier that would invalidate, alter or add to the terms of the filed tariff.

Evanns v. AT&T Corp., 229 F.3d 837, 840 (9th Cir.2000) (internal footnotes omitted).

Therefore, causes of action in which the plaintiff attempts to challenge the terms of a filed tariff are barred by the filed rate doctrine.

Hill v. Bellsouth Telecommunications, Inc., 364 F.3d 1308, 1315 (11th Cir. 2004).  [Emphasis added.]  It is clear under the cited authorities that the filed rate doctrine can only bar claims when the plaintiff making those claims is also the regulated utility's customer.  This is not the case with LFPI claims.  Even if some providers of insurance policies to lenders for forced placement may sometimes call homeowners their "customers," that is clearly not plausible.  Lenders are the customers of insurance companies offering policies for forced placement by lenders, not homeowners.

Immediately after the observation cited by the District Court in this recent LFPI case that the filed rate doctrine operates to prevent discrimination among customers, the Eleventh Circuit made clear that this reference was to the protection afforded by the filed rate doctrine to prevent "carriers from negotiating a lower rate with some customers and then charging others the rate filed with the FCC."  Hill v. Bellsouth Telecommunications, Inc., 364 F.3d 1308, 1316 (11th Cir. 2004).  [Emphasis added.]  No case is known in which any insurance carrier providing insurance for forced placement by lenders ever attempted to negotiate a lower rate with a homeowner for the premium placed on the homeowner by force.

Further, the District Judge in this recent LFPI case relied on "documents" attached to ASIC's motion to dismiss.  In fact, the District Judge took judicial notice of them.  The documents were a declaration with three exhibits.  See them for yourself via PACER:  Trevathan v. Select Portfolio Servicing, Inc., Docket No. 18-1, filed July 2, 2015 (S.D. Fla. Case No. 15-cv-61175).  They total 17 pages inclusive of 4 pages of cover sheets with nothing but exhibit stickers on them.  If this was the proof of ASIC's "filed rate doctrine" defense, it does not appear in the least to be legally sufficient.

Parenthetically, ASIC also filed a second declaration with exhibits on July 2, 2015.  The District Judge in this recent LFPI case did not mention that one in his opinion.  However, we will mention it in a future article most likely.  You can access PACER in the meantime if you want to see this second declaration with exhibits filed on July 2, 2015 at Trevathan v. Select Portfolio Servicing, Inc., Docket No. 18-2, filed July 2, 2015 (S.D. Fla. Case No. 15-cv-61175).

To ASIC's and the declarant's credit, they did not attempt to say that 10 pages of exhibits in Docket No. 18-1 with text on them constituted ASIC's rate filing.  But that is the point in a way.  In Florida, a lot more goes into a rate filing with the Florida Office of Insurance Regulation than the 10 pages in the Electronic Court File here.  Among many other things, each homeowner's insurance rate filing and each "dwelling insurance" rate filing shall include "expense factors" such as "[c]ommissions and brokerage," for starters under the Florida Administrative Code.  See Rule 69O-170.014, F.A.C. concerning ratemaking and rate filing procedures for homeowners insurance; Rule 69O-170.141, F.A.C. concerns the same things as to dwelling insurance.  Both of them in turn depend on compliance also with Rule 69O-170.013(3), F.A.C., as do many of the Florida's insurance ratemaking and rate filing procedures.  That Rule is not brief, as you can see for yourself here:

(3) Filing Submittal Requirements.

(a) Complete rate, rule, underwriting guidelines for both new and renewal business, and form filings shall be submitted with the following information:

Form OIR-B1-582, “Universal Standardized Data Letter,” as adopted in Rule 69O-170.015, F.A.C.

Cover letter that shall include, at a minimum:

The purpose of the filing;

For rate and rule filings, an identification as to whether the filing is made under “file and use” or “use and file”, including the proposed effective date of the rates or the date the rates were implemented;

If this is a resubmission of a previous file, a brief explanation of the prior filing, including reference to the corresponding Florida filing log number shall be provided;

For a rate filing for which a form is also being filed, identification of the corresponding filing log number for the form or when the form will be submitted;

Explanatory memorandum which shall:

Explain the organization of the components of the filing;

Identify and highlight the changes from the current situation;

Include any explanation required by Rule 69O-170.006, F.A.C.;

If there is no rate effect, a detailed explanation of how it was so determined or why it is believed that there is no rate effect.

For filings with a rate effect, an actuarial opinion and supporting memorandum prepared pursuant to Rule 69O-170.0135, F.A.C.

Filing procedures and content required for specific lines of business as delineated in the following rules:

Rule 69O-170.014, F.A.C., (Homeowners and Mobile Homes);

Rule 69O-175.003, F.A.C., (Private Passenger Auto);

Rule 69O-170.0141, F.A.C., (Dwelling);

Rule 69O-170.0142, F.A.C., (Commercial Residential/All Other Property & Casualty);

Rule 69O-170.0143, F.A.C. (Professional Liability for Medical Malpractice); and

Manual pages formatted in compliance with Rule 69O-170.006(2), F.A.C. Subsequent to the initial filing, the insurer may defer submitting final amended manual pages until the Office concludes its analysis. Final approval will not occur until final manual pages have been submitted.

(b) All filings shall:

Be separated into either rate/rule only or form only filings; and

Be separated by line of business in accordance with Rule 69O-170.006, F.A.C.

(c) Group Filings. Insurers may submit a filing on behalf of any combination of insurers within the insurers' group, provided the effective dates are identical for every insurer and the program is identified in the filing.

But the documents filed with the Court in this recent LFPI case were brief. They did not constitute ASIC's rate filing by any stretch of the imagination.  There was no rate filing for homeowner's insurance in the record of this case when the Court ruled that the "filed rate doctrine" applied in this recent LFPI case and there is no rate filing in the Electronic Court Record now either.

Unless the current "plausibility" standard to state a claim upon which relief can be granted in Federal Courts has somehow abolished the following rule, it had been the rule that in order to justify dismissal of a complaint based on an affirmative defense that application of the affirmative defense must appear from the face of the complaint.  Assuming that that rule somehow survives, including in the U.S. District Court for the Southern District of Florida, it is difficult at best to see how the filed rate doctrine defense was made to appear from the face of the complaint in the Electronic Court File of this recent LFPI case.

Much more could be said.  But the time has come to be content with one final observation here:  Parties and Courts accepting the filed rate doctrine as a bar to any insurance-related claim are really saying that the Florida Office of Insurance Regulation approves premium rates that include the kickbacks alleged in LFPI cases including this one.  The Florida OIR would certainly be surprised by that assertion.

That the filed rate argument is even raised and accepted in such cases says more perhaps about LFPI litigation than about the filed rate doctrine.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements).  For a special podcast of "Litigation and Prevention of Insurer Bad Faith" on the subject of Lender Force-Placed Insurance Practices, visit the West Legal Current Podcast here.  All rights reserved.

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NO "REALISTIC POSSIBILITY TO SETTLE" IS AN AFFIRMATIVE DEFENSE, CARRIER'S BURDEN.

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In a decision in line with the decisions of many other Courts in insurance-bad-faith-failure-to-settle cases, a U.S. District Judge in the Southern District of Florida has denied a policyholders' motion for partial summary judgment on the legal effect of whether the insurance carrier had a realistic possibility of settling the underlying case.  The Court held in the bad faith case that "whether an insurer had a realistic opportunity to settle is relevant to the determination of bad faith, and that the insurer bears the burden of proof on this issue."  Lopez v. Allstate Fire & Cas. Ins. Co., Case No. 14-20654-Civ-COOKE/TORRES, 2015 WL 5320916, *3 (S.D. Fla. September 14, 2015).

The Court cited settled law in the Powell case, Powell v. Prudential Prop. & Cas. Ins. Co., 584 So. 2d 12, 14 (Fla. 3d DCA 1991), review denied, 598 So. 2d 77 (Fla. 1992), in support of its holding along with two other U.S. District Court decisions on point from the Northern District of Florida.

What is at first surprising about this ruling, and really the only thing about this ruling that is potentially surprising, is that in so ruling the Court in this case agreed with the insurance carrier's argument that the insurance carrier bears the burden of proof on this affirmative defense.  After a moment's thought, this is not so surprising.  Defendants like the insurance carrier in this case bear the burden of proving their affirmative defenses.  If the Court was going to allow this crucial affirmative defense to stand as pleaded, then the carrier-defendant had to acknowledge that it bears the burden of proving it.

Here is the affirmative defense which the Court accordingly ruled withstood the plaintiffs'-policyholders' motion for partial summary judgment on the insurance-bad-faith-failure-to-settle claim alleged in Lopez:

There was no realistic possibility of settlement within the policy limits pursuant to DeLaune v. Liberty Mutual Ins. Co., 314 So. 2d 601 (Fla. 4th DCA 1975)[, cert. denied, 330 So. 2d 16 (Fla. 1976)], because of Plaintiffs' attorney['s] …deliberate scheme to try and manufacture a reason to reject Allstate's good faith offer to settle Plaintiffs' claims as evidenced by his intentionally withholding pertinent information that was requested by Allstate, by feigning outrage over reasonable questions asked by defense counsel[,] …by feigning outrage over the “Colossus” letter which he knew was a letter that was automatically computer generated sent out on every file, by misrepresenting that the Colossus letter was an attempt to settle the claim, and by otherwise acting in a manner so as to obstruct and/or delay settlement of the claim.

Lopez v. Allstate Fire & Cas. Ins. Co., Case No. 14-20654-Civ-COOKE/TORRES, 2015 WL 5320916, *3 (S.D. Fla. September 14, 2015).

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements).  The Powell rule followed in the Lopez decision is discussed at length in Section 3:16, "Duty to Initiate Settlement Negotiations."

Abstention Unavailable for Mixed Claims of Dec Relief and Bad Faith.

   It has been held that abstention is not available as to “a ‘mixed claim’ for declaratory relief and legal relief” such as a case presenting monetary damages claims coupled with claims for declaratory relief on alleged “claims of breach of contract, bad faith and negligent and intentional misrepresentation,” and “punitive damages.”^FN1

 

^FN1 Tube City IMS Corp. v. Allianz Global Risks U.S. Ins. Co., No. 2:14cv1245, 2014 WL 6682577 *6 (W.D. Pa. November 25, 2014).

 

Reprinted with the permission of Thomson Reuters and the author from the manuscript of the author's 2015 Supplement chapters, and Section 5:57 in particular, in “Litigation and Prevention of Insurer Bad Faith, 3d” ©2015 by Thomson Reuters.

 

MANDATORY ARBITRATION, WAIVE JURY IN BAD FAITH CASES?

          Mandatory arbitration provisions are riding a wave of popularity of late.  Encouraged by recent favorable decisions handed down by five current Justices who are at present a majority of the U.S. Supreme Court, corporations are increasingly encouraged to insert mandatory arbitration provisions in all their contracts.  See, e.g., "'Thrown Out of Court' in Insurance Coverage Disputes Too?" on Insurance Claims and Issues Blog on August 25, 2014.

           Will insurance companies insist on mandatory arbitration of bad faith claims under such provisions?

           Actually, the idea that these provisions require "mandatory arbitration" is correct as far as it goes, but that does not fully describe them.  Here is a representative provision taken from a filing in a Federal Court case:  Download Weller-case-dkt-53.4-d-colo-2013-arbitration-etc.-agreement.  The provision necessarily involves more than mandatory arbitration.  The provision is also a waiver of jury trial.

           It may only be a matter of time before the extent and validity of such mandatory insurance contract provisions are ruled on by Courts in bad faith cases.

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

Please Read The Disclaimer.

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WHAT WE HAVE HERE IS A FAILURE TO ARBITRATE.

    Mandatory arbitration provisions are becoming commonplace.  They are particularly favored by a current majority of the U.S. Supreme Court, which helps to explain their popularity.  Mandatory arbitration clauses cannot always be used to compel arbitration, however.

   In the case of Griswold v. Coventry First LLC, 2014 WL 3892995, 2014 U.S. App. LEXIS 15362 (3d Cir. August 11, 2014), the mandatory arbitration provision was typical.  It was very broad:  The arbitration clause encompassed “[a]ll disputes and controversies of every kind and nature between the Parties arising out of or in connection with this Agreement.” [Emphasis added.]  The Third Circuit panel in this case described this provision accordingly:  "By all accounts, the language in the arbitration provision is fairly standard and interpreted to apply broadly."

    The decisions in this case by the U.S. District Court and by the Third Circuit have been concisely summarized in words that cannot be surpassed in their brevity: The Third Circuit "affirmed a federal judge in Pennsylvania's ruling denying a motion to compel arbitration ... because the allegations in his complaint stem from conduct that occurrred separate from the agreement," said Mealey's Insurance in their post on August 12, 2014.

    The plaintiffs did not sign the contract that contained the mandatory arbitration provision.  They alleged that in a separate agreement with someone else, but not them, the defendant, which the Third Circuit panel described as "a Pennsylvania-based insurer and significant player in the life settlement industry," engaged in conduct giving rise to their alleged claims of "common law fraud, fraudulent concealment, conversion, aiding and abetting the breach of fiduciary duties, unjust enrichment, and also violated state life settlement acts, the Sherman Act, and the Racketeer Influenced and Corrupt Organizations Act (RICO)."

   The Third Circuit panel affirmed the District Judge's ruling denying the defendant's motion to compel arbitration because the non-signatories to the contract containing the provision did not base their claims on that contract, but on matters arising outside of and apart from that contract:

Here, what “saves the day” for Griswold is the fact that the alleged [separate] “Secret McGarrey Agreement” took place prior to and apart from the execution of the purchase agreement. Of course, that alleged fraud was related to the purchase agreement—it set the purchase price and, allegedly, the inflated, undisclosed broker's commission. But that alone is not sufficient to compel arbitration under the equitable estoppel doctrine: the claims must be based directly on the agreement. [Citation omitted.] Here, Appellees' Amended Complaint sufficiently
alleged their injury without mention of the purchase agreement. Put simply, Appellees do not allege breach of the purchase agreement; they allege fraud antecedent to the purchase agreement.

    The Federal Courts' rulings in this life insurance case are broad enough to extend to all insurance contracts -- and to most if not all other forms of contracts too.

Please Read The Disclaimer.  Copyright 2014 by Dennis J. Wall.  All rights reserved. No claim to Original U.S. Government Works.

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AFFIRMATIVE DEFENSES IN FIRST-PARTY BAD FAITH CASE IN FLORIDA.

          In a recent decision, a respected U.S. District Judge confirmed and adopted the well-reasoned report and recommendation of a U.S. Magistrate Judge to deny a plaintiff's motion to strike certain affirmative defenses in a statutory first-party bad faith case in Florida.  Cadle v. GEICO General Insurance Co., 2014 WL 793339 (M.D. Fla. February 27, 2014)(Presnell, USDJ; Kelly, USMJ).  However, the affirmative defenses were not stricken because they were well taken but instead because for the most part, they were denials of the complaint and were not really affirmative defenses at all.

          This was the holding with respect to the first, fourth, fifth, and sixth affirmative defenses, namely, that they are not true affirmative defenses but are instead general denials.  In Federal Court, "[w]hen a specific denial is labeled as an affirmative defense, a court will generally treat the defense as a denial and not strike it."  Cadle v. GEICO General Insurance Co., 2014 WL 793339 *2 (M.D. Fla. February 27, 2014).

          That left two affirmative defenses, at least as far as the Court's discussion of the plaintiff's motion to strike.  One was the defendant's second affirmative defense of "setoff".  The plaintiff argued that there is no setoff available in a first-party bad faith case in Florida; the defendant argued that there is.  Neither side cited any supporting authority, however, according to the Court.  It comes as no surprise, then, that the motion to strike this material was denied.  Cadle v. GEICO General Insurance Co., 2014 WL 793339 *2 (M.D. Fla. February 27, 2014).

          Finally, the only remaining defensive matter under discussion on this motion to strike was the third affirmative defense in this case, which was simply that plaintiff's punitive damages claim in this case is barred by Section 627.737(4) of the Florida Statutes.  The motion to strike was denied as moot in this respect because the Court previously granted the defendant's motion to dismiss the plaintiff's request for punitive damages.  Cadle v. GEICO General Insurance Co., 2014 WL 793339 *3 (M.D. Fla. February 27, 2014).

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

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DJA AS STATUTORY BAD FAITH BY ANOTHER NAME: STILL PREMATURE.

   Proceeding under an assignment of the policyholder's bad faith rights against the defendant insurance company (under a Coblentz agreement), the injured claimant did not ask "directly" for bad faith damages under Florida's Bad Faith Statute, Section 624.155.  Rather, according to the District Court in that case, "Plaintiff has asked for a declaratory judgment that Defendant Capitol is liable to Plaintiff in the amount of $5,000, 000.  This amounts to the same thing ...."  Mobley v. Capitol Specialty Ins. Corp., 2013 WL 3794058 *3 (S.D. Fla. July 19, 2013).

   Since the claim alleged in that case amounted to the same thing as a Florida statutory bad faith claim, the claim alleged was subject to the same defenses including prematurity.  Since there was no determination of coverage in this case, the claim was premature.  The claim was abated in accordance with settled Florida law.  Mobley v. Capitol Specialty Ins. Corp., 2013 WL 3794058 *3 (S.D. Fla. July 19, 2013).

 

Please Read The Disclaimer.  Copyright © 2013 Dennis J. Wall.  No claim to original U.S. Government works.

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).

 

Please Read The Disclaimer.  Copyright © 2013 Dennis J. Wall.  No claim to original U.S. Government works.

EVERYTHING YOU WANTED TO KNOW ABOUT ENFORCING A Coblentz AGREEMENT.

          In most jurisdictions, and within most jurisdictions, an assignment of bad faith rights is allowed from a policyholder to an injured claimant, and their agreement is called just that, an assignment.

          In South Florida, such agreements are known as "Coblentz agreements," named after a famous Federal Appellate Court decision which arose from South Florida.

          In a recent decision, a U.S. District Judge in the Southern District of Florida defined what such an agreement means, how it works, and what is required in order for Courts to enforce one in Florida:

   In this case, Plaintiff is seeking to enforce a Coblentz agreement. A Coblentz agreement is a negotiated final consent judgment entered against an insured which was not defended by the insurer. Wrangen v. Penn. Lumbermans Mut. Ins. Co., 593 F.Supp.2d. 1273, 1278 (S.D.Fla.2008). Generally, under a Coblentz Agreement, an insured defendant “enter[s] into a settlement that assigns to the plaintiff the insured's rights against the insurer in exchange for a release from personal liability.” See Perera v. U.S., Fidelity and Guar. Co., 35 So.3d 893, 903 (Fla.2010). A Coblentz agreement is enforceable against the insurer where “damages are covered by the policy; (2) the insurer wrongfully refused to defend; and (3) the settlement is reasonable and made in good faith.” Id. Additionally, the party seeking to enforce the settlement agreement against the insurer has the burden of initially producing evidence sufficient to make a prima facie showing of that the settlement was reasonable and made in good faith. Shook v. Allstate Ins. Co., 498 So.2d 498, 500 (Fla.Dist.Ct.App.1986).

Mobley v. Capitol Specialty Ins. Corp., 2013 WL 3794058 *2 (S.D. Fla. July 19, 2013).

            That case involved a discovery dispute.  In pertinent part, the District Judge granted the defendant's alternative motion to abate the bad faith claim until damages were determined, if ever.

Please Read The Disclaimer.  Copyright © 2013 Dennis J. Wall.  No claim to original U.S. Government works.

An Inadequate Defense Carries Exposure to Consequential Damages -- Or Not?

Make my mind up.

   The Florida appellate courts have looked at an inadequately provided defense under a liability insurance policy as a breach of contract.  The liability insurer under this view is subject to liability for sums beyond the contract which qualify as consequential damages resulting from the poor defense.

   This settled view was challenged by a U.S. District Judge in Government Employees Insurance Co. v. Prushansky, 2012 WL 6103220 *4 (S.D. Fla. December 7, 2012):  "Moreover, any duty to defend in excess of the policy limits, by its very definition, could not include a claim for a breach of the contract because the insurance contract would only provide for insurance benefits within its policy limits.  It is only through acts constituting bad faith that an insurer is obligated to pay in excess of the policy limits."

Please Read The Disclaimer.  Copyright © 2013 by Dennis J. Wall.  No claim to original U.S. Government works.

TRIAL SUBPOENA COMPELS "CORPORATE REP" OF INSURANCE COMPANY PARTY.

          Compelling the trial testimony of a party is often treated differently from compelling the trial testimony of specified individuals, at least in Federal Courts.

          In Conyers v. Balboa Insurance Co., 2013 WL 2450108 *1 (M.D. Fla. June 5, 2013), the Plaintiffs served a subpoena "to the 'Corporate Representative of Balboa Insurance Company with the most knowledge as to the affirmative defenses, discovery responses, claim denial and selection of engineers.'”  The subpoena purported to compel the attendance of a corporate representative at trial, according to the defendant's reported argument and the Court's opinion in this case.

          The insurance company attorneys filed a motion to quash the subpoena on three grounds.

          First, they contended, the subpoena was improper in that it sought to compel the attendance of an unidentified corporate representative and not "a specifically identified person".

          Second, the insurance company's attorneys argued that the subpoena was served without witness fees and should be quashed for that reason as well.

          Third and finally, they argued that any witness who would qualify as a designated corporate representative of the insurance company party would have to travel from "'California, Arizona, or Texas'" which are all more than 100 miles from the place of trial in Tampa, Florida and thus the Federal Rules of Civil Procedure, specifically Fed. R. Civ. P. 45(c)(3)(A)(ii), did not authorize any such person to travel more than 100 miles in order to attend trial.

          Taking the first ground first, the Federal Court ruled that the trial subpoena at issue is a subpoena compelling a party to appear at trial.  The party compelled to appear is a corporation, namely, an insurance company in this case.  Corporations can only appear at trial through their corporate representatives.  Further, this subpoena was not objectionable as an attempt to compel a deposition; it did not seek to compel a deposition but instead it sought to compel a party to appear at trial.

          Once the Court made that ruling on the first objection, the remaining two objections to this trial subpoena were pretty easily dispatched in this case.  The Plaintiffs' attorneys not unreasonably pointed out that they did not know who the as-yet-undesignated corporate representative would be or how far she or he would have to travel to attend the trial, but that "they are willing, ready, and able to pay any applicable fees and costs once the corporate representative has been identified. Accordingly," said the Judge in this case, "Balboa's arguments concerning nonpayment of fees and costs are unavailing."  Conyers v. Balboa Insurance Co., 2013 WL 2450108 *2 (M.D. Fla. June 5, 2013).

          Further, the hundred-mile-limit did not apply to the corporate representative subpoenaed for trial in this case.   The Court ruled in this regard that the trial subpoena did not seek to compel the attendance of any specified individual but instead sought to compel the attendance of a corporate party's representative.  Accordingly, the Court quashed the insurance company's motion to quash the trial subpoena in this case.   Conyers v. Balboa Insurance Co., 2013 WL 2450108 *1-*2 (M.D. Fla. June 5, 2013).

          There are at least two issues in this case which are not reported in the Court's opinion, and the first has to do not with the 'process' but instead with 'service of process'.  The Plaintiffs served the trial subpoena "upon counsel for Balboa".  Conyers v. Balboa Insurance Co., 2013 WL 2450108 *1 (M.D. Fla. June 5, 2013).  The Court does not say how service was made, but it would be reasonable to expect that the trial subpoena in this case was served by mail rather than hiring a process server to serve opposing counsel with this subpoena.  In any case, no objection to service was made, and that might well be why.  However, if a subpoena is 'served' by U.S. Mail, is there any difference from 'serving' a Notice to Appear At Trial by U.S. Mail, which frequently is the case?  What, if anything in short, is significant about a trial subpoena in this situation as opposed to a 'notice'?

          A second question which is not reported in the Court's opinion in this case is more substantive.  What in fact is the source of authority for one party to compel another party to appear at trial, let alone also to compel another party to testify at trial?  It is of course far and away the default choice of lawyers in civil cases to have their clients-parties appear at trial, and ordinarily to present their testimony, as well.  Once they appear, they can certainly be subpoenaed.  But this case stands for the proposition that before trial, one party can make another party appear at the later trial and perhaps can make another party testify at the trial which is yet to come.  But, to say again in different words, by what authority can parties do this?

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FLORIDA BAD FAITH CLAIM: PREMATURITY, CIVIL REMEDY NOTICE CONDITIONS PRECEDENT.

           Case law applying Florida's Bad Faith Statute, Section 624.155, imposes one condition precedent which flows from the Statute, but refuses to add another condition precedent that the Statute itself does not contain.

          These decisions are embodied in the recent case of Hunt v. State Farm Florida Insurance Co., 2013 WL 1352471 (Fla. 2d DCA April 5, 2013).  Section 624.155 has been held to offer a defense of prematurity particularly to First-Party Bad Faith Claims.

"Prematurity" is really a defense that liability and covered damages have not been favorably determined to the Policyholder.  A Judgment of Breach of Contract is not the only way of obtaining a favorable resolution to satisfy the Florida Statute, however.  It is settled now that an Arbitration Award which establishes the validity of the Policyholder's Coverage Claim is a satisfactory condition precedent.  So it was held in  State Farm Florida Insurance Co., 2013 WL 1352471 *1 (Fla. 2d DCA April 5, 2013).

          In addition, there is an explicit statutory condition precedent of a Civil Remedy Notice of Insurer Violation (CRN) under the Florida Statute.  One thing that the Florida Statute does not require, however, is that the CRN contain a definite "cure" amount, meaning an amount of money stated in the CRN which the Policyholder (or other complainant) contends is the amount of money due from the Insurance Company under the Insurance Contract.  "On its face, the statute does not require a specific cure amount.  We are hesitant to impose a requirement beyond that directed by the legislature."   State Farm Florida Insurance Co., 2013 WL 1352471 *2 (Fla. 2d DCA April 5, 2013).

          One condition precedent imposed, another supposed condition precedent rejected.  Florida Statute Section 624.155 is interpreted by the Florida Courts and Florida lawyers in ways which may often be unknown to others.

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YOU DECIDE: TWO CASES WITH SIMILAR RESULTS, BUT DIFFERENT RATIONALES.

The first case:  Arnett v. Mid-Continent Cas. Co., 2010 WL 2821981 *3 (M.D. Fla. July 16, 2010), holding that "not a known loss" was part of the Insured's Burden of Proof to prove Coverage in the first place, and the Insured did not prove it, under this policy language:

 

The Federal Court called the following provision in this case a “known loss clause”:

 1. Insuring Agreement

[…]

b. This insurance applies to “bodily injury” and “property damage” only if:

[…]

(3) Prior to the policy period, no insured listed under Paragraph 1. of Section II-Who Is An Insured and no “employee” authorized by you to give or retrieve notice of an “occurrence” or claim, knew that the “bodily injury” or “property damage” had occurred, in whole or in part. If such a listed insured or authorized “employee” knew, prior to the policy period, that the “bodily injury” or “property damage” occurred, then any continuation, change or resumption of such “bodily injury” or “property damage” during or after the policy period will be deemed to have been known prior to the policy period.

 

The second case:  Westport Ins. Co. v. Law Offices of Gerald J. Lindor, P.A., 2009 WL 722254 *3-*4 (S.D. Fla. March 18, 2009), holding that the following language was an Exclusion and the Insurer bore the Burden of Proof that it applied, a burden which the Court held that the Insurance Company met in this case:

 any claim based upon, arising out of, attributable to, or directly or indirectly resulting from … any wrongful act occurring prior to the effective date of [the Insurance policy] … if the Insured at the effective [sic] of [the Insurance policy] knew or could have reasonably foreseen that such wrongful act might be expected to be the basis of a claim ....

 

Please Read The Disclaimer.

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Bad Faith in Florida: Southern District "subsumes" and "Dictas" Too.