Claims and Bad Faith Law Blog

EQUITABLE DEFENSES: THE SWEET SMELL OF SUCCESS.

In general terms, equitable defenses including the affirmative defense of "unclean hands" historically have had a pretty spectacular record of success.  Equitable defenses have such a track record of success that it is a wonder that they are not raised whenever the circumstances of a given case allow.

          A small-scale empirical study undertaken long ago found zero successful claims for damages after a claim was dismissed because of unclean hands or any similar equitable defense.  The authors collected a sample of 150 reported cases over a 10-year period.  They wrote the counsel of record in each case and got 56 replies.  "The fifty-six surviving cases were utterly diverse, involving specific performance and injunction, tort and contract.  Yet in one respect they were uniform:  In every instance, an equitable defeat was a total defeat.  In no instance did the defeated claimant gain anything by virtue of any reserved legal rights; in only two instances did he so much as try."  John P. Frank & John Endicott, Defenses in Equity and "Legal Rights," 14 La. L. Rev. 380, 381 (1954).  Download Defenses_in_Equity_and_Legal_Rights.pdf by John P. Frank & John Endicott 14 La. L. Rev. 380 (1954)

          Through this helpful link, download and read the cited article.  With this track record of success, what good reason can there be for not raising equitable defenses when the facts warrant? 

The availability of equitable defenses such as Clean Hands in cases between primary and excess carriers in particular, is raised in 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 7:27 (West Publishing Co., 2024 Supplements in process).

Please read the disclaimer.  ©2024 Dennis J. Wall.  All rights reserved.

EXCESS CARRIERS AND PRIMARY CARRIERS IN NEW JERSEY, AND BEYOND.

When a court describes the importance of excess vs. primary coverage, it is a beautiful thing to excess carriers and their coverage counsel.  In CNA Ins. Co. v. Selective Ins. Co., 354 N.J. Super. 369, 383, 807 A.2d 247, 255 (N.J. Super. Ct. App. Div. 2002), the court stated it this way:

    Whether a carrier provides true excess coverage or primary coverage with an excess “other insurance” clause is meaningful. In a true primary-excess relationship between insurance companies, the excess carrier has a reduced risk of exposure and an increased reliance on the primary carrier.  [Citation omitted.] The true excess carrier may rely on the primary carrier to act reasonably in (1) discharging its claims-handling obligations; (2) discharging its defense obligations; (3) properly disclosing and apprising the excess carrier of events which are likely to effect that carrier's coverage; and (4) safeguarding the rights and interests of the excess carrier by not placing the primary carrier's own interests above that of the excess insurer. 

CNA Insurance v. Selective Insurance, 354 N.J. Super. at 383, 807 A.2d at 255.

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

WHEN DOES AN EXCESS CARRIER HAVE DUTIES OF GOOD FAITH?

There is a theory by which primary carriers and policyholders assert that excess carriers have a duty of good faith and fair dealing even when the underlying limits defined in the excess policy have not yet been exhausted.  The theory is that if the underlying claims against the insureds  are big enough, then first of all, excess carriers have duties to address those claims, and second, when they address such claims they must act in good faith and deal fairly with such claims.

          The excess carrier's obligations under California law emphatically do not include that theory.  "The excess insurer's obligations begin only once a certain level of loss or liability is reached, i.e., once underlying limits are exhausted."  Vizio, Inc. v. Arch Ins. Co., No 2:20-CV-06864-ODW (ASx), 2021 WL 6135756, at *3 (C.D. Cal. December 29, 2021).

          And again:

An excess insurer's duties are triggered by exhaustion of the primary coverage, not by being put on notice that a claim might invade excess coverage.

Vizio, 2021 WL 6135756, at *3.

          There being no coverage under the excess policy for the underlying claim at the time that Vizio claimed it was owed duties of good faith and fair dealing by its excess carrier, the Court granted the excess carrier's motion to dismiss Vizio's claim of bad faith against the excess carrier.  Vizio, 2021 WL 6135756, at *5.

 The Relation of Primary Insurer With Excess Carriers and Reinsurers is addressed by Dennis J. Wall in Chapter 6, Volume 1 LITIGATION AND PREVENTION OF INSURER BAD FAITH (3d ed. West, 2022 Supplements in process). 

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

OKLAHOMA, UMBRELLA/EXCESS-PRIMARY, U.M., AND GOOD FAITH DUTIES.

In Desmet v. Scottsdale Ins. Co., No. CIV-20-330-J, 2021 WL 5173637 (W.D. Okla. October 21, 2021), a federal judge in the Western District of Oklahoma confronted and resolved issues of Oklahoma law concerning Umbrella/Excess Policies, Primary Policies, Uninsured Motorist Coverage, and Good Faith Duties among all of it.

          In this case, an Umbrella Policy was at bar.  This particular type of Excess Policy required Underlying Insurance, of course.  Duties did not incept or begin under the Umbrella Policy until the Underlying Insurance was exhausted, in sum and in substance.

          Further, Oklahoma law made and makes Uninsured Motorist Coverage primary.  In this case, the Underlying Insurance including primary insurance was not exhausted before the plaintiff sued the Umbrella for alleged bad faith.  (Under Oklahoma law, only primary carriers are required to offer U.M. Coverage but in this case, the Umbrella Policy offered U.M. Coverage as a part of the Umbrella contract.)

          Moreover, the terms of the contract are equally clear that all underlying insurers must have paid or been held liable to pay the full amounts of their UM coverage policies before the Umbrella Policy was triggered. Umbrella Policy at 9, 24, 27, 32. As such, Defendant's liability did not attach until the insurers of all the underlying insurance had paid or been held liable to pay the full amount of their respective UM coverage liability.

Desmet, 2021 WL 5173637, at *4. 

          Since the Umbrella Carrier was sued before its Duties of Good Faith ever incepted or even began, the Court granted its Motion for Summary Judgment on the bad faith claims alleged against it in this case. 

          The plaintiff requested leave to amend but the time for amendments established by the Court's Scheduling Order had already passed, and even if the request to amend were to be considered, the Court wrote that it was presented only with general arguments that 'justice requires leave to amend' without any particularized grounds to amend, the lack of good cause, and the issue of diligence, among other things mentioned by the Court while denying leave to amend here.

          In the end, as the Rolling Stones never sang, 'Time Is Not On My Side, oh no, it's not.'

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

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

(Photo The Florida Channel)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

VOLUNTARY PAYMENT NO DEFENSE TO EXCESS CARRIER'S BAD-FAITH CLAIM.

(Image by Thomson Reuters West)

In Metropolitan Prop. & Cas. Ins. Co. v. GEICO Gen. Ins. Co., 186 A.D.3d 1513, 130 N.Y.S.3d 847 (N.Y. App. Div., 2d Dep't, N.Y. 2020), it was held that "voluntary payment" was not a defense available to a primary carrier against an excess carrier's claim of insurer bad faith.

    As explained by the court in this case, the voluntary payment defense at common law is an affirmative defense in an action for the recovery of money which was voluntarily paid with full knowledge of the facts, in basic terms.

    In this case, the appellate court carefully explained that the voluntary payment doctrine has no place:

   Applying the common-law voluntary payment doctrine so as to bar actions alleging bad faith would allow primary insurance companies to benefit from their own bad conduct. Here, MetLife alleged that GEICO acted in bad faith by failing to timely notify MetLife of the underlying personal injury action commenced against their mutual insured, Colvin, by failing to timely apprise MetLife of developments in the underlying personal injury action, by failing to apprise MetLife that GEICO's tender of its policy limit to Gomez in the underlying personal injury action had been rejected, and by failing to adequately and properly defend Colvin in the underlying personal injury action. Moreover, in support of its motion, GEICO submitted copies of numerous emails and letters from MetLife's counsel and claims representative to GEICO requesting documents in order for MetLife to adequately assess Gomez's claim after being informed of the underlying personal injury action by Gomez's counsel and receiving a request from Gomez's counsel that MetLife tender its policy, as well as a copy of MetLife's reservation of rights letter issued to GEICO with respect to the settlement of the underlying personal injury action. As a result, we conclude that the voluntary payment doctrine does not apply in this action alleging bad faith.

Metropolitan Property & Casualty, 186 A.D.3d at ___, 130 N.Y.S.3d at ___ (page numbers not available at time of publication).

The voluntary payment doctrine is explored in the context of lender force-placed insurance practices in § 11:25, 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith (3d ed. and 2020 Supps. Thomson Reuters West).  Actions by Excess Carriers and Defenses of Primary Carriers are the specific focus of §§ 7:7 - 7:18, inclusive, in Volume 1, id.

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

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

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

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

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

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

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

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

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

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

WHEN EXCESS CARRIER'S LAWYER MONITORS, NOT DECIDES, COMMUNICATIONS NOT "AT ISSUE."

In West Bend Mutual Insurance Co. v. Zurich American Insurance Co.,[1]  a primary carrier, West Bend, requested voluminous documentation from what the Court called the common insured's "secondary" carrier, Zurich.  The primary carrier was the plaintiff in the lawsuit, which it filed against the secondary carrier to compel it to pay that part of an excess judgment against their common insured which was in excess of the primary carrier's limits.

The secondary carrier defended on the ground that the primary carrier handled the underlying settlement negotiations in bad faith.

The primary carrier then served a request for production of voluminous documents from the secondary carrier's files, including Zurich's communications with its monitoring counsel.

Zurich's response was to claim privilege and black out or redact most of  200 or so documents, at least at first:

There is a discovery dispute, of course—“the bane of modern litigation.”  [Citation omitted.]  West Bend asked for the documents in Zurich's [underlying] Fleck case claim file and communications with attorney, John Moroney. Zurich was monitoring the progress of the case and retained the firm of Franco & Moroney for that purpose. Zurich, as is usually the case, made sweeping claims of attorney-client privilege and work product, and produced only heavily redacted documents. The claims were exaggerated, proving once again that excessive claims of privilege are all too commonplace in modern litigation and that they are indiscriminately and improperly used “on documents that do not truly qualify for protection.”[2] 

Ordinarily, that would be the crux of the story:  unauthorized redaction and blackouts of evidence.  But that is not this story.

Zurich changed its mind and its position on blacking out evidence.  It produced much of the previously blacked out evidence, limiting its nondisclosure to about 80 of the original 200 documents:

West Bend has moved to compel production of clean documents and any withheld documents, arguing that “at issue” waiver applies. After an initial hearing on this dispute, Zurich had more than a moment of self-realization and “reconsidered many of the redactions made in its Privilege Log.” It then produced many previously withheld or redacted documents. And so, of the original 200 or so documents at issue [Dkt. # 20, at 12–38], only about 80 remain.[3]

West Bend filed a motion to compel Zurich to disclose the remaining 80 documents.  The primary carrier argued in part in part that Zurich could not claim attorney-client privilege because by its defense that West Bend had handled the underlying settlement negotiations in bad faith, and because Zurich's monitoring counsel presumably should have known of any bad faith, therefore, or so the primary carrier argued, Zurich had put its attorney-client communications "at issue" and therefore made them discoverable.

As a matter of law applied to the facts in the record of this case, the Magistrate Judge disagreed.  The Court denied West Bend's motion to compel, succinctly holding that an excess carrier which retains counsel to monitor the underlying litigation does not thereby put is communications with the monitoring counsel at issue in any later bad faith case.

As the Magistrate Judge put it in announcing his holding in this regard:

What is strikingly absent from West Bend's brief is any explanation of how Zurich and its attorney had anything to do with West Bend's decision not to settle. The settlement negotiations were between West Bend and Mr. Fleck. It was West Bend's decision not to settle. The fact that Zurich's counsel “monitored” the proceedings is meaningless unless he had some input into West Bend's decision—and there's nothing to indicate he did. And that means, West Bend hasn't established any at-issue waiver on the part of Zurich.[4]

Please Read The Disclaimer.  © 2018 Dennis J. Wall.  All Rights Reserved.

 

[1] West Bend Mut. Ins. Co. v. Zurich Am. Ins. Co., No. 17 C 2598, 2018 WL 1736153 (N.D. Ill. April 11, 2018) (Cole, USMJ).

[2] West Bend Mut. Ins. Co. v. Zurich Am. Ins. Co., No. 17 C 2598, 2018 WL 1736153, at *1 (N.D. Ill. April 11, 2018) (emphasis added).

[3] West Bend Mut. Ins. Co. v. Zurich Am. Ins. Co., No. 17 C 2598, 2018 WL 1736153, at *1 (N.D. Ill. April 11, 2018).

[4] West Bend Mut. Ins. Co. v. Zurich Am. Ins. Co., No. 17 C 2598, 2018 WL 1736153, at *3 (N.D. Ill. April 11, 2018).

"THE PARTIES ACKNOWLEDGE THAT THIS AGREEMENT" CANNOT BE REVIEWED, JUDGE.

In Lowrey v. Oregon Mut. Ins. Co., No. 2:17-cv-00831-RSL 2017 WL 3769424 (W.D. Wash. August 29, 2017), a Stipulated Protective Order conceals discovery from the public.  The Stipulated Protective Order says that it is not a disfavored blanket or umbrella protective order, protecting everything marked "confidential."  Further, "[t]he parties acknowledge that this agreement is consistent with" local rules of Civil Procedure.  (Presumably, they meant to include the Federal Rules of Civil Procedure in that claim.)

It is not consistent with the Rules of Civil Procedure.

Whoever wrote the Stipulated Protective Order followed many earlier stipulated protective orders of the same ilk in many different kinds of cases.  They wrote that whenever certain information is designated "confidential," it can be used in that lawsuit so no party has an incentive to seek judicial review.

Upon the conclusion of the case, under this stipulation the designated material must either be destroyed or "returned" to the party whose lawyers designated the information as "confidential."

The Rules of Civil Procedure require a showing of "good cause" to get a protective order in the first place.  The Stipulated Protective Order in this case does not require a showing of anything for information to be secret and "confidential."  In particular, whoever wrote the Stipulated Protective Order did not mention the requirement of showing good cause.

To say again, the Stipulated Protective Order in this case is not unique.  It follows many earlier stipulated protective orders filed in many different kinds of cases.

It does not follow the Rules of Civil Procedure.

Which is the point, of course.

Dennis Wall is the author of "Attorneys Decide, Judges Sign Off: Protecting and Sealing Concealed Evidence Including in Insurance Coverage and Bad Faith Cases" published in New Appleman on Insurance (©2017 by LexisNexis).  He is currently at work on a book about agreed protective orders and how they take our money, foreclose on our homes, and change our lives.

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SPECIAL ENROLLMENT PERIODS FOR MEDICARE/HEALTH INSURANCE MARKETPLACE.

Victims of Hurricanes Harvey, Irma, and Maria can catch a break courtesy of the Centers for Medicare and Medicaid Services (CMS).  CMS is inputting special enrollment periods for many Medicare beneficiaries and certain other persons who are trying to enroll in health plans offered through the Federal Health Insurance Exchange.  If you or someone you know is eligible for a special enrollment period, individuals and families disrupted by the hurricanes have the opportunity to change Medicare plans, change prescription drug plans offered through Medicare, and apply for healthcare coverage.  The special enrollment periods are offered in addition to the regular enrollment periods which begin November 1, 2017 for those who are eligible.  Check out the CMS website for more information and for applications.

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

WHEN Does A PRIMARY CARRIER HAVE "UNCLEAN HANDS" IN SUBROGATION?

In a case rich with issues and holdings, Judge Rakoff of the U.S. District Court for the Southern District of New York was faced with an excess carrier which raised "the equitable 'unclean hands' doctrine" as a bar to a primary carrier's principal defense in a subrogation case.  The excess carrier claimed subrogation rights against the primary carrier allegedly by effectively asserting rights against its own insured, which cannot be done in subrogation (known as "the antisubrogation rule").

So, the excess carrier pointed out that subrogation is an equitable remedy and if the primary carrier had "unclean hands," then the primary carrier should not be allowed to raise the antisubrogation rule in equity.

Judge Rakoff disagreed in a subrogation case arising under New York law.  He wrote that the essential proofs in that case defeated the excess carrier's 'unclean hands' contention on the record:

...American Guarantee argues that ACE is barred from asserting the antisubrogation rule because ACE acted inequitably in the state-court litigation. (Citation omitted.) Here, American Guarantee argues that ACE, which controlled the defense of Wager Contracting in the state-court lawsuit, authorized a legal strategy focused on minimizing ACE's losses and shifting liability to American Guarantee rather than on defending Wager Contracting against all claims.

    This is, in effect, an invocation of the equitable “unclean hands” doctrine.  Under New York law, American Guarantee, as the proponent of the unclean hands defense, must demonstrate that “(1) [ACE] is guilty of immoral, unconscionable conduct; (2) the conduct was relied upon by [American Guarantee]; and (3) [American Guarantee] was injured thereby.” (Citations omitted.) 

    American Guarantee has failed to establish (or even raise a genuine dispute of material fact) that the unclean hands doctrine bars ACE from asserting the antisubrogation rule. The undisputed evidence shows that the counsel retained by ACE to defend Wager Contracting conscientiously acted in Wager Contracting's best interest in the underlying litigation. At bottom, then, American Guarantee's argument is that it was inequitable not to prioritize American Guarantee's interests in the case. But the mere fact that Wager Contracting's interests did not align with American Guarantee's does not even begin to suggest the type of bad-faith misconduct needed to make out a defense of unclean hands.

Ace Am. Ins. Co. v. American Guar. Liab. Ins. Co., ___ F. Supp. 3d ___, No. 16 Civ 8773 (JSR), 2017 WL 2840286, at *9 (S.D.N.Y. July 2, 2017) (emphasis added by boldface and italics; underlining by Judge Rakoff in original).

End result:  There is at  least a slim possibility, in theory, that the equitable defense of "unclean hands" is available in an equitable subrogation action between an excess carrier and a primary carrier.  The reality will mostly trump the theory in this instance, as this case shows.

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

"NO SETTLEMENT WITHOUT OUR CONSENT" MEANS GIVE US A CHANCE.

In Stryker Corp. v. National U. Fire Ins. Co., Nos. 15-1657/1664, 2016 WL 6818853 (6th Cir. November 18, 2016), the Sixth Circuit reversed an award of $8.6 Million.

In this liability insurance coverage case alleged under Michigan law, the Sixth Circuit held that the clear purpose of the consent-to-settle clause is to afford the liability carrier with the opportunity to negotiate settlement of claims going forward, not backward.  In other words, the clause operates prospectively to deter conduct which would be an obstacle to the carrier's carrying out its indemnity obligations under the liability insurance contract.

The Sixth Circuit reversed in large measure because it held that the policyholder violated a consent-to-settle clause set forth in an excess carrier's policy, as it happened, by settling claims against the policyholder, and ten years later asking for its liability carrier's validation of the settlements that the policyholder made long ago.

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

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INITIATING SETTLEMENT NEGOTIATIONS FOR CHRISTMAS?

 

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There are ten jurisdictions from which cases have been reported and found in which the Courts have declared a legal duty for liability insurance companies to initiate settlement negotiations even in the absence of a settlement demand from the claimant.  Oklahoma is one such jurisdiction.

However, in a recent case it was held that an excess carrier did not have a duty to initiate settlement negotiations until the underlying, primary carrier exhausted its policy limits, as the excess insurance policy required before any obligation of the excess carrier came into being.

Or so the Tenth Circuit Court of Appeals has predicted.  SRM, Inc. v. Great Am. Ins. Co., 798 F.3d 1322, 1325-26, 1329 (10th Cir. 2015) (predicting Oklahoma law in a case of apparent first impression concerning an excess liability carrier).

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).  All rights reserved.

Merry Christmas to All and to All a Good Year in 2016!

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PRIMARY'S DIRECT DUTY TO EXCESS CARRIER? ANSWER WILL DETERMINE OUTCOME.

Dawn/NASA

In a case in Massachusetts, a District Court dismissed an excess carrier's claims for "equitable subrogation" and "breach of the implied covenant of good faith and fair dealing" against a primary carrier of their common insured.  HDI-Gerling Am. Ins. Co. v. Navigators Ins. Co., No. 15-10338-FDS, 2015 WL 5315190 (D. Mass. September 11, 2015).

However, the court deferred ruling on Gerling's motion to dismiss Navigators' alleged claim for "bad faith."  The case presented a conflict-of-laws question as to whether New York or Massachusetts law should apply to the question of whether there is a direct duty of good faith in settlement owed by a primary carrier to an excess carrier.  In New York, a primary insurer owes a direct duty of good faith in settlement to an excess insurer, but not under Massachusetts insurance law.  Since the record did not allow for a full and final answer to the choice-of-insurance-laws question, the court deferred ruling in order to allow the record to be more fully developed for a ruling in the future.

It is interesting that the District Court's dismissal of the excess carrier's claim for alleged breach of an implied covenant of good faith and fair dealing did not cause it to similarly dismiss the excess carrier's alleged "bad faith" claim.  As the District Judge saw the question, there could be an independent bad faith claim in tort under New York law even where there is no contractual duty of good faith and fair dealing even under an implied contractual covenant.  Accordingly, the excess carrier could have a claim upon which relief can be granted if New York law and not Massachusetts law applies to the question.  The answer to the choice-of-insurance-laws question will simultaneously determine the outcome of that question too.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All rights reserved.  No Claim to Original U.S. Government Works.

HAWAII MOST RECENT EQUITABLE SUBROGATION STATE, EXCESS v. PRIMARY BAD FAITH.

International Space Station "Good Morning". / NASA.

Hawaii became the most recent jurisdiction to recognize an excess carrier's rights of equitable subrogation to the insured's bad faith claims against the insured's primary carrier, in answer to certified questions in St. Paul Fire & Marine Ins. Co. v. Liberty Mut. Ins. Co., 135 Haw. 449, 353 P.3d 991 (2015).

The Hawaiian high court recognized the validity of the excess carrier's subrogation rights even where a primary insurer has paid its own policy limit toward settlement and their mutual insured incurred no loss.  St. Paul Fire & Marine Ins. Co. v. Liberty Mut. Ins. Co., 135 Haw. 449, 353 P.3d 991, 992, 996 (2015).

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All rights reserved. 

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EXCESS CARRIER'S MOTION BARS PRIMARY CARRIER EXPERT FROM REALIGNING RELATIONS.

          In Netherlands Ins. Co. v. Lexington Ins. Co., 2013 WL 2120817 (W.D. Ky. May 15, 2013), Netherlands was the primary carrier and Lexington was the excess carrier for insureds they had in common.  They signed an agreement that said so, which ended up in an Agreed Order in Netherlands' lawsuit against Lexington.

          Netherlands' lawsuit against Lexington alleged claims for equitable subrogation, breach of contract, and unjust enrichment.  Under all claims, Netherlands requested that Lexington pay 50% of  the $226,650.57 in defense expenses incurred by Netherlands in defending the underlying claims.

          Parenthetically, Lexington retained a different defense counsel from the one retained by Netherlands, in order to pursue a "causation defense".  Lexington incurred $101,679.82 in billings from the separate defense counsel it retained, and it paid the bill.  Netherlands Ins. Co. v. Lexington Ins. Co., 2013 WL 2120817 *1-*2 (W.D. Ky. May 15, 2013).

          Netherlands' case against Lexington rested in large part on an argument that during the discussions leading to their written agreement, Lexington and Netherland also agreed that they would share defense expenses 50-50.  Lexington denied this.

          Netherlands proffered the testimony of an expert witness who was a lawyer and a former claims adjuster that he interpreted the carriers' agreement to require a fifty-fifty split of the underlying defense expenses.  He based this conclusion in part on an exchange of e-mails between the carriers. Netherlands Ins. Co. v. Lexington Ins. Co., 2013 WL 2120817 *8 (W.D. Ky. May 15, 2013).

          Lexington, the excess carrier, filed a motion to exclude the expert testimony, which the Court granted.  Unfortunately, the Court wrote rather broadly about the particular expert's reading of e-mails in this case:

Moreover, it is inappropriate to allow an expert to interpret the parties' e-mail communications, as experts have no specialized knowledge that would aid in their interpretations.

Netherlands Ins. Co. v. Lexington Ins. Co., 2013 WL 2120817 *8 (W.D. Ky. May 15, 2013).

          The Court's actual holding in this regard was made clear later in the Court's opinion.  The Court granted the motion to bar this testimony because it constituted a legal conclusion, e-mails or not:

           This case boils down to a simple question: whether there was a valid, enforceable contract between Netherlands and Lexington to share the defense costs. As to this question, Netherlands seeks to offer Mr. Huff's opinion that there was such a contract based on the parties' e-mail communications. The Court finds, however, that Mr. Huff's opinion is nothing more than a legal conclusion. Mr. Huff has basically analyzed the facts himself (i.e. the language of the e-mail communications) and drawn a legal conclusion based on his interpretation of these facts (i.e. a contract existed). This is unacceptable. The Sixth Circuit has long held that expert testimony on the law “is excluded because the trial judge does not need the judgment of witnesses.” . . .     Other courts have reached similar conclusions.

 Netherlands Ins. Co. v. Lexington Ins. Co., 2013 WL 2120817 *9 (W.D. Ky. May 15, 2013).

          On the same ground, that an expert witness should not be permitted to testify to legal conclusions, the Court excluded the Netherland's expert's opinions interpreting the insurance policy provisions and the Agreed Order.  Netherlands Ins. Co. v. Lexington Ins. Co., 2013 WL 2120817 *9-*10 (W.D. Ky. May 15, 2013).

Please Read The Disclaimer.

 

MEDIATION STATEMENTS = EVIDENCE OF BAD FAITH?

          It appears to be settled California law that there are no exceptions to the confidentiality of mediation communications or to the statutory restrictions placed on the content of Mediator Reports.

          However, in another case arising under California law,  a U.S. District Court allowed an amendment to an Excess Carrier's Bad Faith Complaint to add a Bad Faith theory of failure in settlement which included reference to a party's Mediation Statement in the underlying case:

Arch complains of Traveler's failure to offer a settlement amount at anytime prior to the bench trial finding of liability, including in response to Plaintiff's $14 million evaluation made in a mediation statement.

Travelers Indemnity of Connecticut v. Arch Specialty Insurance Co., 2013 WL 322889 *2 (E.D. Cal. January 28, 2013).

          Perhaps a communication made in a "mediation statement" is not a confidential "mediation communication" in California?

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DUTIES TO EXCESS CARRIERS ARISE FROM EQUITABLE SUBROGATION, MAJORITY HOLDS.

    Arch Specialty Insurance and Travelers Indemnity both issued policies to the same Policyholders for identical periods.  Arch issued an "excess" policy while Travelers issued two policies, a primary policy and an umbrella policy.  A lawsuit was filed against one or both of the Policyholders (this is unclear) following an accident that occurred during the policy period.  The underlying lawsuit settled when Travelers "contributed" the $2 Million limits of its two policies and Arch "funded the $20.5 million balance of the settlement."  Travelers Indemnity Co. v. Arch Specialty Insurance Co., 2011 WL 6328286 *1 (E.D. Cal. December 16, 2011), Download Travelers Indem. Co. v. Arch Specialty Ins. Co. (E.D. Cal. Case No. 2.11CV01601, Order Granting Travelers' MD and MS, Filed Dec. 16, 2011) PUBLIC ACCESS.

   Arch, the excess carrier, sued Travelers, the primary carrier, on several different theories of recovery.  The one of interest here is a theory that Arch alleged as its third claim for relief, that the primary carrier, Travelers, owed it, the excess carrier, "a direct duty of care".   Arch pursued this claim under  Oregon law.  (It contended that California law was "unsettled," and so it conceded for the purpose of resolving Travelers' Motion to Dismiss that it did not have the right to claim a direct duty flowing from primary carrier to excess carrier under California law.  Id. at *3 n.2.) 

 

    The Federal Court rejected this claim entirely.  The Court's analysis began by addressing California law:

 

   Both parties agree that under California law, Arch does not have a direct cause of action in its own right against Travelers for breach of the duty of care.  Due to an absence of contractual privity, an excess insurer has no direct claim in its own right against a primary insurer for the primary insurer's allegedly unreasonably [sic] failure to settle a claim within its policy limits.  [Citation omitted.]  The excess insurer's rights, if any, arise solely through equitable subrogation of the rights of the insured.

 

Id. at *3. 

 

   This is the majority view.  Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 7:9 "Actions by Excess Carriers--Subrogation" (West Third Edition 2011).  The reason is that under equitable subrogation, the excess carrier must first protect its Policyholder and other Insureds before it can claim their rights of action over against the primary carrier. See id.

   Oregon is aligned with this view, as is California.  The Federal Court noted this fact, Travelers Indemnity Co. v. Arch Specialty Insurance Co., 2011 WL 6328286 at *5, citing Wall, Litigation and Prevention of Insurer Bad Faith, supra § 7:9, n.11, and the Court accordingly dismissed with prejudice the excess carrier's claim of direct duty owed to it by the primary carrier in this case because any duty owed by primary carrier to excess carrier "is a duty that arises from equitable subrogation and not from a direct duty".  Id. at *6.

    In short, the excess carrier's protection lies in its own protection of its own Policyholder or other Insured first.

 

Please Read The Disclaimer.

Smile When You're Silent, Pardner ... Colorado Court Dismisses Extracontractual Claims.

   Settlement of underlying Underinsured Motorist Benefits was a key issue in Download Dumpert v. State Farm Fire & Casualty Co. (D. Colo. Case No. 10cv02320, Order Dismissing Second and Third Claims for Relief, Filed June 29, 2011) PUBLIC ACCESS, also published as 2011 WL 2581398 (D. Colo. June 29, 2011)(authorized password required to access Westlaw).

    Following a tragic accident which resulted in the death of one Justin Dumpert, there was a prior settlement for $850,000.00, an amount less than the tortfeasor's $1,100,000.00 Liability limits.  Then and thereafter Mr. Dumpert's parents sued State Farm which had issued their son a UIM Policy.  Counsel representing the Plaintiffs-parents refused to allow Deposition questions asking why the underlying settlement was for an amount less than the tortfeasor's Liability limits.

  The Policyholder-Plaintiff alleged Claims for Insurance Bad Faith (under Colorado and Arizona Law) and Statutory Claims for alleged wrongful Denial of Coverage by the UIM Carrier Defendant.  Among other things, the UIM Carrier's Counsel argued that Summary Judgment of Dismissal on this record was warranted on the extracontractual claims "because the plaintiffs have failed to show any basis for contending that the denial of the claim in excess of the settlement amount was unreasonable or in bad faith."  Dumpert v. State Farm Fire & Casualty Co., 2011 WL 2581398 at *2.

   The Federal Senior District Judge agreed.  The Court in this case dismissed the Claims for alleged Insurer Bad Faith under Colorado or Arizona Law both, and also dismissed the Statutory Claim for Denial of Coverage under a Colorado Statute.

   The Federal Judge did not overlook the Plaintiffs' refusal to answer questions about their underlying settlement for less than the tortfeasor's Liability Limits.  The Court ruled that "the plaintiffs will not be permitted to explain their acceptance of that amount on the grounds stated in the scheduling order [which declared the Plaintiffs' representation that their underlying settlement reflected their assessment of the emotional toll of going through Trial and moreover their lawyer in the underlying case did not advise them of the Statute of Limitations] ...."  Id.

I must be in a "Colorado State of Mind," you might say.  Here are some more news reports involving Colorado:  Jim Rutenberg and Jeff Zeleny, "Perry's Rift With Bush Could Hold Peril in a Presidential Race" p. A11, col. 1 (New York Times Nat'l ed., Wed., July 6, 2011)(reporting that governor Rick Perry of Texas "went to Colorado last week" to join other wealthy people at a gathering of Kochs) and Kirk Johnson, "Steamboat Springs Journal / Family Still a Vital Part of a Colorado Town's Fabric" p. A11,  col. 2 (New York Times Nat'l ed., Wed., July 6, 2011).

Please Read The Disclaimer.  

Mediation Communications in Evidence, Duties to Defend, Good Faith ...

   ... Regardless of Other Insurers With the Same Duties, California Court Holds.

   In Howard v. American National Fire Insurance Co., Download Howard v. American National Fire Insurance Co. (Cal.1st DCA Case No. A123187, Opinion Filed August 11, 2010) PUBLIC ACCESS also published as 2010 WL 316851 (Cal. 1st DCA August 11, 2010)(Westlaw subscription required to access Westlaw), California's First District Court of Appeal has provided a unanimous decision in which the Court's Opinion addresses more issues than Carter has pills, as they say.  Here are some of them.

1.  Mediation Communications in Evidence.

   Like so many Courts, this Court pointed to Communications in Evidence from a Mediation without any discussion of whether any party objected to an apparent breach of Mediation Privilege.  Further, in this case, the particular Mediation Communications evidenced the apparent Bad Faith settlement conduct of a Defendant Liability Insurance Company.  See Howard v. American National Fire Insurance Co., 2010 WL 31526851 at *2.

Mediations and the question of Mediation Privileges in Bad Faith Cases are addressed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §§ 8:19 (Third-Party Cases) and 12:19 (First-Party Cases) (Shepard's/McGraw-Hill First Edition; West Publishing Company Second Edition and 2010 Supplement).

2.  Duty to Defend Regardless of Other Insurers.

   In cases where the Defendant Insureds are exposed to liability beyond their Liability Policy Limits, this Court concluded that California Insurance Law clearly allows such Insureds to pursue causes of action for Damages "'apart from defense costs'" for the Liability Insurers' Wrongful Refusals to Defend.  This is true even where such Insureds are defended in the underlying case by other insurers.  Id. at *12.

Consequential Damages issues in Wrongful Refusal to Defend Cases and in all other kinds of "insurer Bad Faith" Case are analyzed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 13:9 (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement).

3.  Duty of Good Faith and Fair Dealing Also Notwithstanding The Presence of Other Liability Insurers, Each of Which Has The Same Good Faith Duty.

   Duties of Good Faith and Fair Dealing are most often addressed by the Courts in the context of an alleged Wrongful Failure to Settle.  It becomes confusing, sometimes, when there are many Liability Insurance Companies, each with its own positions on its Insurance Coverages, and often each with its own evaluations of their respective Insureds' exposure to liability and to damages.  Even though in some cases there will be many Liability Insurance Companies which all provide Coverage of one kind or another to the same Insured, the Court in this case held that under California Law, "when one of multiple insurance policies provides coverage, each insurer's obligation is to cover the full extent of the insured's liability up to policy limits." Id. at *17.

Particular situations involving Primary and Excess Liability Insurance Companies with a common Insured, and how those situations affect their respective Good Faith Duties, are discussed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 5:22, "Excess Carrier's Defenses:  Bad Faith of the Primary Insurer" (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement).

To be continued.........

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There is "Following Form," And Then There is, "Following Form".

   **Author's Note:  If you have reached this blog through a list that carries advertising, your computer may or may not be put at risk either through the list or through the advertising.  I do not accept or authorize any commercial advertising of any kind on any list or post.  Placing commercial advertisements with or near any of my web log posts is prohibited.  Further, I do not recommend any products or services advertised with or near any of my posts or any list of my posts.**   

   "Following form" is a term of art in the insurance industry, and it is not to be used blindly, according to a recent judicial decision.  An Excess Liability Insurance Policy containing that phrase to describe its coverage, may find that its coverage will be held by a Court to provide coverage which the carrier may not have contemplated.  This happened in a recent case in which there were two (2) underlying policies, one which did not exclude coverage for punitive damages and a second underlying policy which did expressly exclude coverage for punitive damages.  The issue there of course was for which of the two underlying policies was the subject Excess Policy "following form."  Download Chad Youth Enhancement Ctr., Inc. v. Colony National Insurance Co. (M.D. Tenn. Opinion Filed February 2, 2010), also published as Chad Youth Enhancement Ctr., Inc. v. Colony Nat'l Insurance Co., 2010 WL 455252 (M.D. Tenn. February 5, 2010)(subscription required to access Westlaw).

   The Federal Court in that case pointed out that this conflict could be avoided simply by "following the form" of a specific level of underlying insurance, as another Excess Policy involved in that case provided.  The Excess Carrier in question "could have easily limited its liability, not by having to list all of the express terms of the [underlying] policy and exclusions, but by more narrowly defining the precise policy on which it was following form."  Chad Youth Enhancement Ctr., Inc. v. Colony Nat'l Insurance Co., 2010 WL 455252 *11 (M.D. Tenn. February 5, 2010).

   In addition, the Excess Liability Insurance Policy at issue "could have specifically excluded all punitive damages from coverage, just as it excluded coverage for damages related to war and coverage for punitive damages in the terrorism endorsement."  Chad Youth Enhancement Ctr., Inc. v. Colony Nat'l Insurance Co., 2010 WL 455252 *11 (M.D. Tenn. February 5, 2010).

   Having failed to either expressly provide for which of any underlying policies it would be "following form," or to expressly exclude coverage for punitive damages, the Federal Court held in that case that the subject Excess Liability Insurance Policy provided coverage within the limits of Tennessee Law for punitive damages assessed against its Insured.

   Underwriters.  My goodness, what are you going to do with them or without them?

Please Read The Disclaimer. 

As Texas Goes, So Go Country's Courts ... in Opposite Direction.

     **Author's Note:  If you have reached this blog through a list that carries advertising, your computer may or may not be put at risk either through the list or through the advertising.  I do not accept or authorize any commercial advertising of any kind on any list or post.  Placing commercial advertisements with or near any of my web log posts is prohibited.  Further, I do not recommend any products or services advertised with or near any of my posts or any list of my posts.**   

   As Fast as Their Legs Will Carry Them.

   In every jurisdiction in the U.S. which has addressed the question, "Bad-Faith," extracontractual damages claims are held to be assignable to a Third-Party Claimant.

   In every U.S. jurisdiction in which the question of such Assignments to Excess Carriers has been addressed, as well, the unanimous holding has been that such "Bad-Faith," extracontractual damages claims are assignable to an Excess Liability Insurer against the Policyholder's Primary Liability Insurer.

   Recently, Courts applying Texas statutory law have reached conclusions that actions under various Texas Penalties Statutes are not assignable.  E.g., Download Great American Insurance Co. v. Federal Insurance Co. (N.D. Tex. Case No. 3.04cv2267, Opinion Filed August 8, 2006), also published as Great American Insurance Co. v. Federal Insurance Co., 2006 WL 2263312 *9-*10 (N.D. Tex. August 8, 2006)(holding that claims under Texas Deceptive Trade Practices-Consumer Protection Act ["DTPA"] are not assignable by a Policyholder under a primary or  Third-Party or Liability Insurance Policy, against the Primary Carrier, to the Policyholder's Excess Carrier)(subscription required to access Westlaw); cf. Download Launius ex rel. Glasgow v. Allstate Insurance Co. (N.D. Tex. Case No. 3.06cv0579, Opinion Filed April 17, 2007), also published as Launius v. Allstate Insurance Co., 2007 WL 1135347 *5-*6 (N.D. Tex. April 17, 2007)(holding that "extra-contractual claims" under Texas DTPA and under the infamous article 21.21 of the Texas Insurance Code did not survive the death of the Policyholder-Homeowner under a Homeowner's Insurance Policy)(subscription required to access Westlaw).  The Online Docket of the Launius case reflects that it was settled after a jury verdict was returned, and that an Order was entered Dismissing the Case With Prejudice on July 26, 2007. 

Cases deciding the validity of Assignments of various extracontractual Damages or "Bad Faith" claims and causes of action, are analyzed by Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 7:2 ("Actions by Third Parties -- Assignment") and 7:8 ("Actions by Excess Carriers--Assignment") (Shepard's/McGraw-Hill Second Edition, 2009 Supplement West Publishing Company).

Please Read The Disclaimer.  

Primary Carrier Good Faith: ....

                  "It's Not Just For A Policyholder Any More!"  Is It?

     A new case decided on Valentine's Day, 2007 forges new law and also  presents an apparent new conflict in Florida Insurance Law:  Progressive American Insurance Co. v. Nationwide Insurance Co. (Fla. 1st DCA Case No. 1D06-2159, Opinion Filed February 14, 2007).   That short case  -- the entire decision is concisely printed in 3 paragraphs -- involves two Liability Insurance Companies, both with a duty to defend except for one thing.  When the Court compares their "other insurance" clauses, one Insurance Company's Policy makes it "excess" by comparison while the other Policy is "primary" by comparison.

     On these basic facts, the conclusion in this decision is the distinct minority position across the United States.  This issue has been addressed many times by Courts, parties and their counsel including me over the years.

     Back to the new decision at hand.  In it, a distinguished panel of Florida's First District Court of Appeal applied a widely held rule of what is called "equitable subrogation".  Under this universal rule, an Excess Carrier pays indemnity under the Policy it issued to the Policyholder and thereby gets to stand in the shoes of the Insured-Policyholder.  That means that the paying Excess Carrier gets the ability to assert the same rights against, and to claim the same obligations from the Insured's Primary Carrier, that the Insured-Policyholder has.

     That includes the right if any that the Insured-Policyholder has to claim that the Primary Carrier did not act in Good Faith toward the Insured.  The Court in the new decision ended with a conclusion that is very different from this universal rule, however:  "Therefore, [the Primary Carrier] owed [the Excess Carrier in this case] a duty of good faith."

     The vast majority view to the contrary is discussed at length in, for example, Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith Ch. 6 and Ch. 7 (West Publishing Co. 2d Edition 1994, 2007 Supplement in Process).  I represented a Primary Carrier in an earlier case with a different result and an apparently conflicting decision by the same First District Court of Appeal.   The conflicting holding is not cited in the new decision, the oldest citation in it being to a case decided in 1985:  "We further find [the Primary Carrier's] remaining claim that [the Insured's Excess Carrier] owes a direct duty to [the Primary Carrier] not cognizable under Florida law."  Hartford Accident & Indemnity Co. v. Travelers Indemnity Co., 554 So. 2d 559, 560 (1st DCA 1989)[emphasis added], review denied, 564 So. 2d 1086 (Fla. 1990).

     It will be interesting to see how the First District Court of Appeal and other Florida Courts resolve the apparent conflict.  It will be significant whether Florida Insurance Law stays in the majority column or joins the tiny minority on this narrow but national issue.

                                         Please read the Disclaimer.

Primary and Excess Flood Insurance ... And CatClaim Computer Models.

   Chubb has just issued a Press Release announcing that in addition to its Primary Flood Insurance offering, "Chubb Introduces Broad Excess Flood Policy ...."  Link to the Chubb December 20, 2006 Press Release here.

    A valuable gift is given us at this time of the rolling year, by taking a closer look at where Chubb is going.  A concise and valuable education is available in Coverage issues for Catastrophe Claims and what to offer to address and relieve them, as perceived by one of the world's leading Insurance Companies.  Chubb currently offers Primary Flood Insurance in 20 States in the United States.  Chubb's Primary offering is both broader in potential Coverage than the mainstay Federal Flood Insurance Policy provisions, and it offers much higher Policy Limits:  $15,000,000.00 in Home and Contents Coverage, attractive to high-tax-bracket Policyholders.

    The new Excess Flood Insurance Policy offered by Chubb will be made available in 15 of the 20 States in which the Primary Flood Policy is offered.  In the future, more States will receive the Excess offering, according to the linked Press Release. 

   Imagine a map of the United States with me for a moment.  10 of the 20 States where Chubb offers it Primary Flood Insurance are located inland.  These are places where rivers and lakes are likely to be the primary sources of flooding, such as Illinois, Missouri, and Pennsylvania.  8  States in this group are located on the Atlantic Coast.  Florida is the only State located on the Gulf Coast, and Florida is the only State on the list which is located on the Atlantic Coast south of Virginia.   Finally, 2 States on the Pacific Coast are on Chubb's Primary offering list.   15 of these 20 States make the cut for Chubb's Excess Flood offering:  Currently, Arizona, Colorado, Idaho, Ohio and Utah do not.

   Anyone would ask why, with several Insurance Companies refusing to tread where many different kinds of Claim risks are associated with Hurricanes and other Catastrophes -- such as from Wind -- why is Chubb, an admittedly bright group of people, offering any sort of new Coverage that would be available only in the event of a Catastrophe?

   One reason appears in a newspaper report apparently based at least in part on Chubb's linked Press Release, above.  The newspaper report contains a quote that is not found in the Press Release, along with other additional and useful information.  Stated on Web Site as Available ONLY TO WALL STREET JOURNAL ONLINE SUBSCRIBERS:  Lavonne Kuykendall, "Chubb to Offer Flood Insurance for Some Upscale Coastal Customers" (Wall Street Journal, Thursday, December 21, 2006, p. D2, col. 1).    In the newspaper report, Chubb's spokesperson who was responsible for rolling out this new Flood Insurance product is quoted as stating that some other Insurance Carriers are adjusting their offerings because those other Insurance Carriers are relying on "'new catastrophe models'" which suggest that "'they are more exposed than they thought they were.'"  In other words, Chubb is basing its projections and thus its new Flood Insurance offerings on the reliable fact-based Computer Model for Hurricanes and other Catastrophes.

   The clear and obvious result of some, but by no means all other Insurance Companies, buying in to a new 'model' based instead on opinions about past and future claims is that those other Insurance Companies are adjusting their own offerings down. 

   Hoping for protection to All which addresses Catastrophes in the United States and the World, Happy Holidays to All!

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE IN THAT JURISDICTION, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.

 

 

When a Primary Carrier Becomes Excess ....

                     Then the Excess-Once-Primary Becomes the Insured!
                                                            
    Federal District Judges have to decide State Law Questions.  It is not easy because they are not State Court Judges.  Still, what Federal Judges say usually counts for something.  Sometimes even in Insurance, if not always.  A recent example comes from the decision in the case of St. Paul Fire & Marine Insurance Co. v. Lexington Insurance Co., 2006 WL 1295408 (S.D. Fla. Case No. 05-80230-CIV Opinion Filed April 4, 2006)(subscription required), Download St. Paul v. Lexington (S.D. Fla. April 4, 2006).pdf.

    In St. Paul v. Lexington both insurance companies had what the Federal  District Judge called "virtually identical" provisions that made them both primary.  Nonetheless, in the space of about 6 pages the Federal Court made Lexington primary, and St. Paul excess.

    This involved St. Paul having a right of "equitable subrogation" against Lexington by which St. Paul stood in the shoes of the insureds "and assumes the rights of those insureds."  In other words, St. Paul became the insureds because of equitable subrogation.

    Then the Federal Court put this holding into action.  Lexington should have defended the lawsuit against the real insureds, said the Federal Court, "in good faith, and, at a minimum, to give notice to St. Paul as the following carrier of the critical aspects of the case as it progressed."  The problem there is that when equitable subrogation is involved, the case against the insureds is always over.    Which it was.

    When the case against the insured is over, there is, at a minimum, nothing to give notice about because nothing is happening.  Not notice to anyone, including a "following carrier" whatever that may mean.  Much less to give notice about "critical aspects" since those are not happening, either, of course.
   
    St. Paul v. Lexington is a Federal Court's honest answer with undoubtedly good intentions to address Florida Insurance Law Questions decided otherwise in other cases in Florida State Courts.  St. Paul and Lexington are doubtless bound by the result in the Federal case regardless.

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY IN AND FAMILIAR WITH THE PARTICULAR JURISDICTION AND ITS LAWS, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.