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Ever wonder about Universal Life Insurance? A painstaking definition of at least the UL policies at issue has been given by the District Judge in Adv. Trust & Life Escrow Serv's, LTA v. N. Am. Co. for Life & Health Ins., ___ F. Supp. 3d ___, No. 4:18-cv-00368-SMR-HCA, 2022 WL 883750, at *1 (S.D. Iowa March 22, 2022):
Universal life insurance is a type of permanent life insurance. Contrasted with standard term life insurance, the Class Policies [i.e., the 2 policies issued by Defendant North American before the Court in this putative class action] combine a death benefit with an investment, savings, or interest-bearing component (“Savings Component”). Typically, life insurance policies such as the Class Policies deposit premium payments into the Savings Component and the insurer will deduct policy-authorized monthly charges. The Class Policies are flexible-premium policies, meaning there is no fixed monthly premium the insured must pay to keep their policy active, aside from the specified monthly charges. If the funds in the policy account are insufficient to pay these monthly charges, the policy will go into grace and lapse after the grace period expires.
Clearly, a universal life insurance policy is not your father's CGL.
There is a reported contagion spreading throughout Europe. It is not the coronavirus itself, but it is a phenomenon directly related to Covid. It is the reported behavior of some life insurance companies delaying or denying people life insurance coverage based on their having contracted Covid or on being suspected in some way of having contracted Covid.
In the United States, more than 25 million people have tested positive for the coronavirus as of this writing. In the face of these developments, the Consumer Federation of America has not waited for the disease of denials to spread to the United States.
The CFA has issued a letter to the National Association of Insurance Commissioners calling for a new model rule. Faced with the contagion spreading from Europe in which life insurance companies have denied claims and applications from people with Covid-related issues, the CFA is urging reasonable behavior from life insurers in the United States.
“We understand reasonable precautions are needed, but to harm COVID patients and their families again is unacceptable. State regulators need to step in and issue a rule to protect consumers from arbitrary insurance company practices. Transparency and reasonableness in underwriting must be the standard,” said J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner, who is quoted by the CFA in its press release. Press release, Recovered COVID-19 Patients Facing New Life Insurance Hurdles in Europe, Protections Needed for American Consumers /
In issuing its request for a rule of reasonableness, the Consumer Federation of America is essentially asking that life insurance companies in the United States act in good faith. Dealing fairly with applicants and policyholders is the essence of good faith -- and the surest way to avoid the dreaded extracontractual risk of lawsuits for "bad faith."
In D.S.S. v. Prudential Ins. Co. of Am. & Time Warner Cable, No. 3:20-CV-248-CRS, 2020 WL 6877738 (W.D. Ky. Nov. 23, 2020), a federal court turned the defendant corporations' motion to dismiss into a motion for summary judgment, and then granted them summary judgment on the claims of life insurance policy survivors.
Survivors brought suit to allege claims of breaches of contract and of fiduciary duty, bad faith, and violations of ERISA for the life insurance company's refusal to pay the survivors the proceeds of a life insurance policy taken out by the cable company on the deceased, a cable company employee.
The deceased was their mother.
There was evidence in the record, however, that the deceased had changed her beneficiary to a person who was not one of the suing survivors, in accordance with the plan and the policy.
So, in accordance with the plan and the policy, the life insurance company paid the proceeds of the policy to the primary beneficiary named on the policy. Among other things, there was no bad faith on the part of the insurance company on this record, the judge ruled.
In a bad-faith case arising out of denial of a life insurance claim, the Chief U.S. Magistrate Judge of a U.S. District Court took apart a claim of attorney-client privilege to bar discovery of a key memorandum from a claim file:
The Court has considered the arguments by the parties and has reviewed the memorandum at issue. The memorandum is not written by an attorney and does not state that it conveys a confidential communication from Defendant’s counsel. Instead, the memorandum is written by Defendant’s Head of Claims and refers to business practices for contestable claims in states with a statute requiring that the condition that was misrepresented contributed to the loss.
Salopek v. Zurich Am. Life Ins. Co., CV No. 18-339 JAP/CG, 2019 WL 1746303, at *2 (D.N.M. April 18, 2019).
The Court continued with regard to the attorney-client privilege claim:
Moreover, the substance of the memorandum merely advises claims handlers to refer contestable claims to a claim manager and for possible legal advice. For these reasons, the Court finds Defendant has not met its burden in proving the memorandum is privileged.
Salopek, 2019 WL 1746303, at *2.
But the Court was not finished. The Chief Magistrate Judge concluded that the memorandum in question is not only not privileged, but it is relevant:
In addition, the Court finds the memorandum is relevant. Plaintiff’s claims involve a contestable claim and alleged misrepresentations on an insurance application. While the memorandum refers to statutes in states other than New Mexico, it also discusses Defendant’s business practices when presented with contestable claims and the effect of a misrepresentation. Therefore, is relevant to the claims and defenses in this case.
IT IS THEREFORE ORDERED that Plaintiff’s Motion to Compel Zurich America Life Insurance Company to Produce an Unredacted Copy of a Memorandum, (Doc. 101), is GRANTED, and Defendant shall provide Plaintiff with an unredacted copy of Bates No. ZALICO_SAL0002235[.]
Salopek, 2019 WL 1746303, at *2-*3.
So simply mentioning lawyers in a memorandum is not enough to keep the memorandum secret even in a bad-faith case. This is the universal or nearly universal rule and this decision exemplifies the rule.
I noted in an article published on Insurance Claims and Bad Faith Law Blog on December 26, 2017, that I reviewed the electronic court file of a federal case in California on PACER. I have since reviewed that electronic court file even more closely, and the results are startling.
The case is Feller v. Transamerica Life Ins. Co., No. 2:16-cv-01378-CAS-AJW, filed in the U.S. District Court for the Central District of California. The issue is concealed evidence in this insurance case. The plaintiffs sued their life insurance company based on claims that their carrier overcharged them for premiums.
That fact should be kept in mind, or nothing wonderful can come of this story, to borrow a line from Dickens' A Christmas Carol. Made concrete and applied to this life-insurance-premium case, it clearly outlines the range of conceivable needs, if any, and of course desires for "redaction," "sealing," and secrecy, in short, for concealing the evidence.
The results of two searches on the electronic docket are revealing (no pun intended). The first of my searches that I want to report here was for the word, "stipulation." The word was found 48 times since the first document was filed 23 months ago on February 28, 2016.
That is an average of more than 2 stipulations per month.
The second of my searches that I want to report here was for the word, "seal." This search yielded 205 results. That means that the docket referenced 205 times when evidence was requested to be sealed, including of course many repetitions of the word, but still resulting in a total of 205 results.
Some of the things that were sealed either raise questions or are outright unknown except to the parties and perhaps to the District Judge or to the Magistrate Judge. Two examples, in turn, will be sufficient here to illustrate.
The judge made one change, apparently. The District Judge crossed out the word, "PROPOSED," before she signed the Order.
There are no findings in the Order that the District Judge signed.
There are no recitals of fact in it at all.
There are no citations of legal authorities.
We know only from the Clerk's docket that the District Judge's Order sprang out of the Plaintiffs' Application. We cannot see this Application, however, because the public is not allowed to see it.
The Application is designated as Doc. No. 132 on the Clerk's electronic docket, filed October 10, 2016. It is not accessible. It is known only from the docket entry written by the Clerk.
To put it simply, among the many things we are not going to know from this, is what documents were sealed by this slice of the proceedings and what testimony was concealed from public view by this one motion and one Order among many.
In a case alleging not state secrets, but instead alleging overcharged-insurance-premiums-claims.
The second example from reviewing the electronic court file that illustrates the existence of questions concerning rulings and sealings, concerns the pleadings. This specific example relates to Doc. No. 149 on the Clerk's electronic docket, apparently filed on Halloween in 2016 after a pair of secrecy orders were entered.
This renewed application is based on the accompanying memorandum of points and authorities, the declaration of Larry N. Stern and attached exhibits, the declaration of Andrew S. Friedman and attached exhibits, and such further and other evidence as may be presented at or before the hearing of this motion.
It should be noted that much of the other evidence cited in this motion is sealed.
So is the Plaintiffs' Memorandum in Support of their Renewed Application for Preliminary Injunction.
It is a pleading on which a judge is asked to rule in a case affecting the premiums paid to a life insurance company.
Still and all, we cannot see it. It too is sealed from public view.
Dennis Wall is continuing to work on a book based in part on investigations into public records of actual court files involving concealed evidence and how it affects our lives.
Prudential made a deal with Wells Fargo. Wells could issue "a low-cost life insurance policy to the bank's retail customers." Wells Fargo issued the policies on Prudential paper. These policies, called "MyTerm" policies, were basically "ROI" policies, or insurance for the Return on Investment.
When the story broke of 5,000 employees at Wells Fargo somehow setting up fake accounts for Wells' customers in order to get sales credits for the sales quotas set at Wells, Prudential decided to investigate these "ROI" policies issued by Wells in Prudential's name.
In a Seventh Circuit opinion written by Judge Posner, the appellate panel unanimously came to the same conclusions in a case arising under Wisconsin law: Sun Life Assur. Co. of Canada v. U.S. Bank Nat'l Ass'n, ___ F.3d ___, No. 16-1049, 2016 WL 5929825 (7th Cir. October 12, 2016).
Judge Posner began his opinion recognizing the common law principle that no-one can take out insurance on someone else's life unless they have an insurable interest.
His opinion then recognized that the common law remedy was changed in Wisconsin in 1975. Thereafter, the remedy changed from cancelling a life insurance policy in which the policyholder did not have an insurable interest, to allowing a court of competent jurisdiction to order the life insurance carrier to pay the proceeds to the policyholder in certain cases.
This was such a case. After Sun Life delayed paying, it was ordered to pay the proceeds to U.S. Bank of a $6 million life insurance policy which Sun Life had issued on the life of one Charles Margolin, now deceased. "[T]he district judge ruled that the bank was entitled to the policy proceeds -- the $6 million -- plus statutory interest and 'bad faith' damages for Sun Life's foot dragging." Sun Life Assur. Co. of Canada v. U.S. Bank Nat'l Ass'n, ___ F.3d ___, No. 16-1049, 2016 WL 5929825, at *2 (7th Cir. October 12, 2016).
The Seventh Circuit affirmed. In Judge Posner's view, shared by the rest of the Seventh Circuit panel, the common law prohibition and the Wisconsin statutory remedy were easily reconcilable, to begin with:
Gambling contracts, including life insurance policies that lack an insurable interest, are still forbidden. The statute changed only the remedy for violation, from invalidation of the policy to requiring the insurer to cough up the proceeds rather than—as Sun Life claims entitlement to—being allowed to keep all the premiums and pay nothing to the policy holder because the latter had no insurable interest in the policy.
Sun Life Assur. Co. of Canada v. U.S. Bank Nat'l Ass'n, ___ F.3d ___, No. 16-1049, 2016 WL 5929825, at *2 (7th Cir. October 12, 2016). Parenthetically, noting the reference to "Sun Life claims entitlement to -- being allowed to keep all the premiums," Judge Posner mentioned that Sun Life collected $2.5 million in premiums during the life of this policy (no pun intended).
In addition to paying the $6 million proceeds here, Sun Life was required to pay interest charges imposed by a Wisconsin statute for delayed payment unless the carrier has "reasonable proof" which was "lacking here, that it does not have to pay the claim," and further to pay "bad faith" damages because first-party bad faith under Wisconsin law "has been proved as well." Sun Life Assur. Co. of Canada v. U.S. Bank Nat'l Ass'n, ___ F.3d ___, No. 16-1049, 2016 WL 5929825, at *2 (7th Cir. October 12, 2016).
Another stipulated secrecy order has been approved. Probably not the latest iteration of the stipulation process, but a recent one at this time: Crews v. American Gen. Life Ins. Co., No. 2:16-cv-02095-RGK-RAO, 2016 WL 4033954 (C.D. Cal. July 26, 2016) (Oliver, U.S.M.J.).
The Crews case is a dispute over life insurance policy proceeds. The primary beneficiary of the life insurance policy is the only plaintiff in the case. He stipulated with the only defendant in the case, the life insurance company.
Together, they stipulated to what should be kept secret, not only by themselves but by all others who might be retained or whose testimony or documents might appear in the Court file. In particular, they stipulated that "discovery regarding potentially confidential manuals, guidelines, and internal procedures" of the life insurance company are all secrets. Note that "discovery regarding" the life insurance carrier's manuals, guidelines, and procedures is a complete secret according to these two parties and not just the manuals, guidelines, and procedures themselves.
In particular, the two Crews parties stipulated for themselves and for others that the CONFIDENTIAL information they want to keep secret includes the evidence that will be produced in discovery in support of the plaintiff's claims for breach of contract and insurance bad faith:
Plaintiff anticipates seeking discovery regarding potentially confidential manuals, guidelines, and internal procedures of American General that includes confidential and proprietary information of American General, production of which may violate confidentiality agreements between American General and third parties.
Crews v. American Gen. Life Ins. Co., No. 2:16-cv-02095-RGK-RAO, 2016 WL 4033954, at *1 (C.D. Cal. July 26, 2016) (stipulated paragraph numbered 1.2, "GOOD CAUSE STATEMENT," approved by Oliver, U.S.M.J.).
No individualized determinations of discoverability if these parties can help it.
Using words not found in any applicable Rules of Civil Procedure, they stipulated to keep secret "private information for which special protection from public disclosure and from use for any purpose other than prosecuting this litigation may be warranted." Crews v. American Gen. Life Ins. Co., No. 2:16-cv-02095-RGK-RAO, 2016 WL 4033954, at *1 (C.D. Cal. July 26, 2016) (stipulated paragraph number 1.1, approved by Oliver, U.S.M.J.) (emphasis added).
What exactly is "private information" in the eyes of the plaintiff primary beneficiary? If this is intended to mean personally identifiable information like Social Security numbers, then that kind of information is already protected by statute from disclosure and a stipulation is not necessary. So, to say again, what does "private information" mean here? We do not know. The plaintiff primary beneficiary and the defendant life insurance company in this case did not say.
Neither did the Court which approved their stipulation.
The standard for trade secret protection, as well as for protection of other information and items to be kept confidential by Courts presiding over litigation, has never been that secrecy "may be warranted." The standard most often applied is "for good cause shown." Since when do Courts enter orders allowing parties to keep testimony and documentation secret because secrecy "may be warranted" instead of requiring the parties to produce evidence showing why?
The Crews parties securitized their secrecy, as it were: They made an agreement to keep the testimony and documents in their case secret in other cases as well, not just to keep the discovery and evidence secret in their own litigation. The sole plaintiff and the only defendant in Crews also stipulated that their secrets should be kept even if another Court in another case ordered that they disclose "any information or items designated in this Action as 'CONFIDENTIAL'." If another Court enters such a disclosure order in another case, or if a subpoena issues from that other case for any information that either the plaintiff primary beneficiary or the defendant life insurance company designates CONFIDENTIAL in Crews, then the primary beneficiary and the life insurance carrier in Crews will "cooperate" unless they "timely seek a protective order," in which case they "shall not produce any information [that either of them] designated as 'CONFIDENTIAL'" in Crews, "before a determination by the court from which the subpoena or order issued, unless the Party has obtained the Designating Party's permission." Crews v. American Gen. Life Ins. Co., No. 2:16-cv-02095-RGK-RAO, 2016 WL 4033954, at *5 (C.D. Cal. July 26, 2016) (stipulated paragraph number 8[c] approved by Oliver, U.S.M.J.).
The stipulation does not provide for how a Court in another lawsuit is supposed to determine whether the information designated CONFIDENTIAL by either party in Crews should be disclosed in another case, or kept secret. Good luck to anyone attempting to pursue that course, and good luck in getting permission from the primary beneficiary or from the life insurance carrier to disclose for example the practices at issue in the Crews litigation.
One final thought and that is how these parties have obtained enforcement powers over their stipulation. The secrecy stipulation being a "court order" now, "[a]ny willful violation of this Order may be punished by civil or criminal contempt proceedings, financial or evidentiary sanctions, reference to disciplinary authorities, or other appropriate action at the discretion of the Court." Crews v. American Gen. Life Ins. Co., No. 2:16-cv-02095-RGK-RAO, 2016 WL 4033954, at *7 (C.D. Cal. July 26, 2016) (stipulated paragraph numbered 14 approved by Oliver, U.S.M.J.). So that is how the secrecy stipulation will now be enforced, and by whom: The United States District Court for the Central District of California.
Stranger-oriented life insurance policies, or “STOLI” (shouldn’t that be STROLI? pron. STROLLY) policies, are an investment scheme. In a recent case, for example, questions were presented regarding these types of policies “that the issuing insurance company sought to have invalidated several years after their issuance.” The insurance company’s argument was apparently exclusive, in that it was based in that case on the contention that the person buying the life insurance policy (in this case as in most, a giant corporation) did not have an insurable interest from inception in the life of the person insured by the life insurance policy. As in most cases, the insurance company’s contention in that case is codified in a State statute.
The procuring corporation argued gamely that the life insurance company had waited too long to contest the procuring corporation’s lack of insurable interest, so that the insurance company, it argued, was estopped by another State statute.
The arguments played out in the case of Pruco Life Ins. Co. v. Wells Fargo Bank, N.A., 780 F.3d 1327 (11th Cir. 2015), in which the Federal Appeals Court panel certified the following question to the Supreme Court of Florida for a response:
Thus, the question before this Court is which statute controls. Stated another way, when these two statutes collide, does Florida's interest in prohibiting the issuance of insurance policies purchased by an individual with no insurable interest [Fla. Stat. § 627.404] trump its interest in requiring insurance companies to determine, within a designated period of time, whether a particular policy is subject to that or any other challenge [Fla. Stat. § 627.455]?
Pruco Life Ins. Co. v. Wells Fargo Bank, N.A., 780 F.3d 1327, 1329 (11th Cir. 2015).
So, there is no question but that the bank in this case had absolutely no insurable interest in the lives of the people on whose lives the bank placed insurance. Rather, the overall question was whether, having no insurable interest, the bank can claim the benefit of a statute which makes its interest basically incontestable, or so the bank argues in this case.
There is one further question which concerns one Berger. “That question is whether § 627.404, the insurable interest statute, is violated when the individual who procures the insurance has the required insurable interest at the time of issuance, but nonetheless has procured the policy in bad faith.” Pruco Life Ins. Co. v. Wells Fargo Bank, N.A., 780 F.3d 1327, 1329 n.3 (11th Cir. 2015). [Emphasis added.]
It is a puzzle why anyone would carve out this question of bad faith procurement from all stranger-originated life insurance policies and ask it about only one.
"Life insurance, by its very nature, was created to benefit the people we love and care about most."
CEO in a letter to employees, quoted by David Gelles, "An Employee Dies, and the Company Collects the Insurance," p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Monday, June 23, 2014).
Calling Life Insurance "the sacred bargain," California State Controller John Chiang described the actions of one Life Insurance Company which sells both annuities and Life Insurance Policies this way:
"They have a business-based rationale for their practices instead of a consumer-based approach to fulfill their promises."
Quoted by Marc Lifsher, "California Officials Grill MetLife Over Alleged Failure to Pay Death Benefits" (Los Angeles Times Online, Tuesday May 24, 2011).
Some Life Insurance Companies sell annuities. These are payments made by the Insurance Companies during the life of the purchaser of an annuity, in basic terms. The Life Insurance Company checks the Social Security rolls to learn when the holder dies. At that time, the Company stops paying the annuity.
Some of the same Life Insurance Companies sell, well, Life Insurance Policies. These are of course payments made by the Life Insurance Companies upon the death of the Policyholder. The same person may hold an annuity and of course the Company knows of that person's death. Moreover, the same Company that checks the Social Security rolls to learn when an annuity holder dies, also either knows or has the means readily at hand to know, when a Life Insurance Policyholder dies.
However, when a Life Insurance Policyholder dies, the Life Insurance Companies do not make payment on the Life Insurance Policies to the beneficiaries. Even though they know in some cases that the Policyholder has died and the beneficiaries are entitled to be paid. Nonetheless, even with this knowledge, these Life Insurance Companies reportedly do not pay unless and until the beneficiaries also know that the Policyholder is dead and make a claim on the Life Insurance Policy proceeds.
Time will tell what comes of these coordinated investigations. And in particular, whether any Court will be moved by whatever further facts may be developed, to entertain future claims and causes of action based on alleged "institutional Bad Faith" by Life Insurance Companies which engage in these practices currently under investigation.
The Florida Insurance Commissioner was scheduled to hold a day-long hearing on this issue on Thursday, May 19, 2011. This issue was initiated by investigations from Coast to Coast concerning whether Life Insurance Carriers are failing to pay death benefits to beneficiaries under Life Insurance Policies they issued despite their institutional knowledge of policyholder deaths in some or many instances. Expectations ran high and potential topics of discussion are explored by Robert Trigaux on Venture Blog, a St. Petersburg Times Business Blog Online, posted Thursday, May 19, 2011.
Time will tell whether and what expectations were met that day.
With the headline, "Are Some Life Insurers in Florida Purposely Avoiding Paying Out On Policies of Deceased?", Robert Trigaux of the St. Petersburg Times Venture Blog poses this question based on reports of investigations by State Regulators from California to Florida:
If this is true, it's one of the more despicable schemes out there. Florida and other states are investigating whether some of America's largest life insurers are failing to ensure that they pay out on policies of deceased customers.
Robert Trigaux, Venture Blog, posted April 28, 2011. The source of the story? The Wall Street Journal. Investigation confirmations reported in the Blog from the Florida Office of Insurance Regulation (Florida Department of Insurance) and from another report in the Wall Street Journal.
... At Their 2010 Fall Meeting in Orlando, Florida.
The NAIC today deferred resolution on a proposal of the American Council of Life Insurers affecting Long-Term Commercial Mortgage Loans. The ACLI representatives, who address State Insurance Commissioners by their first names and in turn are addressed by them by their first names, were in favor of the deferral. Their proposal is undergoing "modeling" at this time, although what exactly is "modeling," is unclear at least to the uninitiated like me.
The ACLI's website, www.acli.com, identifies the ACLI in the following terms:
ACLI is a Washington, D.C.-based trade association with more than 300 legal reserve life insurer and fraternal benefit society member companies operating in the United States. ACLI members represent more than 90 percent of the assets and premiums of the life insurance and annuity industry. In addition to life insurance and annuities, ACLI member companies offer pensions, 401(k) and other retirement plans, long-term care and disability income insurance, and reinsurance.
An ACLI Derivatives Risk Management Proposal was handed out to onlookers. It is written for accountants in accountants' jargon. If it was written to obscure whatever it contains, it serves its purpose in that case. However, it is obviously not meant to address nor even acknowledge proposals which have been suggested to abolish Derivatives or to regulate them, particularly Credit Default Swaps or CDS or CDS's, like other forms of Credit Insurance.
The ACLI representative affirmed that the ACLI position on this proposal is that it is an accounting issue, if I heard the gentleman correctly. The NAIC panel considering this proposal had considered it previously, and this time it voted unanimously to "expose it for adoption," joining the original proposal with a New York State-proposed amendment, for 30 days. After that time, the panel will apparently meet via telephone conference call to consider whether Derivatives are useful forms of Risk Mitigation, as proposed and amended.
The Plaintiff in Hanneman v. Guarantee Trust Life Insurance Co., Download Hanneman v. Guarantee Trust Life Insurance Co. (N.D. Fla. Case No. 5.10cv115, Order Filed August 5, 2010) PUBLIC ACCESS also published as 2010 WL 3087509 (N.D. Fla. August 5, 2010)(Westlaw subscription required to access Westlaw), is a beneficiary under a Life Insurance Policy who sued for alleged Bad Faith. The Defendant filed a Motion to Dismiss based on the ground that the Plaintiff had not provided the Civil Remedy Notice of Insurer Violation that is required by Florida's Bad Faith Statute, Fla. Stat. § 624.155. The Plaintiff countered that she was pursuing a Common Law Third-Party Bad Faith action, not an action for Statutory Bad Faith.
The Federal Court granted the Motion to Dismiss, holding that the Plaintiff's Claim was for First-Party Bad Faith which is not recognized at Florida Common Law. Since the Plaintiff's only source of remedy was under the Bad Faith Statute, and since the Plaintiff had admittedly failed to provide the Notice required by that Statute and a condition precedent to Claims pursued under it, the Plaintiff's Bad Faith Complaint was dismissed:
Plaintiff is not a third party asserting a claim against the [deceased] insured, Kilan Hochstetler. She is not the type of third-party beneficiary contemplated under the common law of third-party bad faith claims. Plaintiff's claim is properly treated as a first-party bad faith claim subject to the requirements of § 624.155.
Hanneman v. Guarantee Trust Life Insurance Co., 2010 WL 3087509 at *2.
In short, the Court held in this case that a Beneficiary under a Life Insurance Policy is a "First Party," i.e., a party for whose benefit the Insurance Policy was issued, and she is not a stranger to the Insurance Policy.
A pair of Federal Court rulings highlights First-Party Bad Faith Law. The rulings came in cases involving the law of neighboring States.
In one, a class action lawsuit against various GEICO Insurance Companies (GEICO Casualty, GEICO General, etc.) was certified as to certain Bad Faith Claims under Delaware substantive law. It can be a breach of the implied covenant of Good Faith and Fair Dealing, the Court noted, for an Insurance Company to fail to investigate or to process a Claim for Benefits including in this case Personal Injury Protection Benefits, or to delay payment in Bad Faith. The Federal Court certified a class action with respect to "Bad Faith Breach of Contract" Claims involving asserted reduction or denial of PIP Benefits under Delaware substantive law. Download Johnson v. GEICO Casualty Co. (D. Del. Case No. 06.408 Opinion Filed December 30, 2009), also published as Johnson v. GEICO Casualty Co., 2009 WL 5173486 (D. Del. December 30, 2009)(page numbers not yet assigned at time of publication; unnumbered paragraph beginning, "c. Count III: Bad Faith Breach of Contract"; Westlaw subscription required to access Westlaw).
In the other case, a Federal Court in a case involving Pennsylvania substantive law, adopted the Report and Recommendation of the Chief Magistrate Judge and dismissed Claims for alleged breach of Fiduciary Duty, Common Law Bad Faith, Breach of Duty of Good Faith and Fair Dealing, and Unfair Insurance Practices Act violations, among other Claims. Download Johnson v. GEICO Casualty Co. (D. Del. Case No. 06.408 Opinion Filed December 30, 2009) and Download Johnson v. State Farm Life Insurance Co. (W.D. Pa. Case No. 09.207 Report and Recommendation of U.S. Magistrate Judge, Filed February 8, 2010), also published as Johnson v. State Farm Life Insurance Co., 2010 WL 522333 (W.D. Pa. February 8, 2010)(Westlaw subscription required to access Westlaw). Simply put, two prongs of Pennsylvania Insurance Law caused the dismissal of the cited Claims: (1) As a general rule, there is no Fiduciary Duty owed by a Life Insurance Company to a beneficiary and their relationship is instead a relationship between two parties to a contract; and (2) There is no Fiduciary Duty of Good Faith and Fair Dealing ordinarily under a First-Party Insurance Contract, whereas there is a Fiduciary Duty of Good Faith and Fair Dealing when a Liability Insurer assumes the handling under the Insurance Contract, of claims asserted against the Insured. See id. at *6.
Two First-Party cases, both presenting First-Party Bad Faith Claims, and two different rulings.
Or are they really so different? There is a difference of course between contracts and torts. And that is one of the differences which distinguish these rulings in two cases involving the law of neighboring States.
A "viatical settlement" is defined in Wikipedia, the free encyclopedia, as "the sale of a life insurance policy by the policy owner before the policy matures." The policyholder gets a little more than the current cash surrender value while she or he is alive; the purchaser gets the right to the payoff and typically turns around and sells it to investors. In a viatical settlement purchase, the policyholder is usually near death. A "life settlement" according to Wikipedia is similar but involves policyholders who are likely to live awhile.
This ghoulish bargain carries with it the clear incentive to shorten the amount of time that the investors have to pay the Premiums. That will reduce their expense and increase their all-important profit, hastening the day of their payoff. The opportunities for Unfair Dealing and Bad Faith are, and should be, apparent.
Swiss Re has released "sigma" results for 2005 and, tentatively, for 2006 to date. "Sigma" is the Greek codeword used by Swiss Re to identify its computer-based reports. A link to both reports, released separately by Swiss Re, is here. The information is revealing. Here is some of it.
2005
Total Insurance Policy Premiums in 2005 were $3,426,000,000.00 or 7.7 % of the World's "Gross Domestic Product". About 56 percent of Insurance Premiums are for Life Insurance. There is a definite link to commerce here. Swiss Re notes further that "the growing loan market generated more mortgage-related life insurance policies." The rest of the Premiums went to pay for what Swiss Re categorizes as "non-life" Insurance Policies.
2006
So far in 2006, Swiss Re's computer results reveal the third-lowest "insured losses" in the last 2 decades. The "loss events" studied by Swiss Re's computers show that this year, typhoons and earthquakes predominated among the Catastrophe list and they "hit mainly newly industrialising countries where insured losses are relatively low." The irreplaceable loss of Life to Catastrophes appears to be proportionately higher than Property Losses to date. The role of Insurance available to relieve worldwide Catastrophes in 2006 is not necessarily great, it appears.
Economic losses worldwide in 2006, Swiss Re says, total $40,000,000.00 and so far $15,000,000.00 or 37.5% "were actually covered by insurance." There is no word on how if at all, the remaining 62.5% or $25,000,000.00 of economic losses is and are addressed in the countries where this year's Catastrophes have struck.
Remembering to give thanks for our blessings, and remembering to remember those who may not be as fortunate, 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.
On October 27, 2006, my post addressed the issue of "life settlement" agreements. Those are arrangements in which people with great pain, or who are near death, sell the proceeds of their life insurance policies in exchange for money to pay current medical and other bills to continue daily life. Today's linked article, above, lumps "life settlement" agreements with "spin-life" premium arrangements .
Public Policy issues are many here. However, one highly practical Insurance issue deserves immediate focus. It is driven by economics and it is this: Life Insurance Companies depend on historical evidence, like other Insurance Companies, to determine whether they will accept a risk and if they accept the risk, what kind of Policy they will issue and what Premiums they will charge the Policyholder. The historical evidence summarized very well in today's article displays the fact that many Policyholders cancel their Life Insurance Policies. That is a fact and Life Insurance Companies plan on this fact. They include it in their basis for charging Premiums.
If instead all or nearly all Life Insurance Policies now in effect will produce payouts rather than Policyholder-cancellations, there may not be any Life Insurance available over the course of time, or what Life Insurance is made available will carry a very high Premium, because of the great increase in risk. The issues are addressed further in today's linked newspaper article.
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.
Premiums Accepted For Life, But Not For Property Insurance.
Huge CatClaims in 2004 and 2005 and large profits in 2006 have been the subjects of previous posts here. One possible approach to the combination of these twin facts involves two steps. Proponents see the two steps together as leading to even greater profits in the Insurance Industry.
The first step these persons see is to eliminate risk. This involves eliminating all CatClaims Coverage such as in Florida. Steps to eliminate CatClaims Coverage include cancellation of existing Homeowner's Policies where permitted, or issuing renewal Policies with what are in effect total CatClaims Exclusions where authorized, or not issuing Homeowner's and other First-Party Property Policies at all.
The second step is to divert resources from the eliminated risk to a different source of profit. Financial planning products for targeted prospects make a favored source for proponents of this method. Targeted prospects are not limited by geographical location under this plan. Prospects for financial planning products can live anywhere. So long as prospects possess the capacity for Life Insurance Policies or for such other financial products as annuities, they qualify as targets under this approach. Some label this second step as the much-attempted 'one-stop shopping' goal for selling Insurance. One of the major Insurance Companies reportedly chooses this double approach, reported for example in this Subscription Required Article by Liam Pleven, "Hurricane Losses Prompt Allstate to Pursue New Path" (Wall Street Journal, Friday, November 24, 2006, page A1, col. 1)(Subscription Required).
Consider something else, however. If a prospect for Life Insurance is not a prospect for CatClaims Coverage -- because she or he cannot obtain Homeowner's Insurance for example -- then that prospect cannot live just anywhere if they want to be protected against CatClaims. Businesses have their own issues obtaining CatClaims Coverage in Hurricane or Earthquake or other Catastrophe prone areas, but businesses cannot locate to any geographical area where employees are not available to staff that business. Florida is not alone in bracing for these effects although the double approach to Insurance Profits outlined above hits Florida very hard. Other States and their locales which will feel the effects of a double approach of the kind outlined in this post include the Gulf Coast -- Texas, Louisiana, Mississippi, Alabama, and Florida -- and also the Atlantic Coast from Florida north to Georgia, South Carolina, North Carolina, Virginia, Maryland, Delaware, New Jersey, New York, Connecticut, and Rhode Island.
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 INSURANCE ISSUE, THE JURISDICTION AND ITS LAWS, WHENEVER YOU
TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.
So-called "life settlement" agreements involve Policyholders and Buyers, in broad and general terms. The Policyholders are often ill or elderly or both, and they are going to die later from the illnesses they are suffering through now. Their incentive is to pay the bills, now, rather than to have Life Insurance Companies pay on account of their death in the future.
The Buyers in such cases are generally willing to buy a later payout on the Policyholder's Life Insurance, if the later payout they receive in exchange for current cash is larger than the money they give the Policyholder now.
According to a suit filed by the Attorney General of the State of New York, some of these Buyers may be willing to buy more than "life settlements" with Policyholders. Some of these Buyers may be willing to pay money to save their place in line, so to speak, according to a news report published today by Charles Duhigg & Joseph B. Treaster, "Spitzer Accuses a Company of Bid-Rigging and Other Types of Fraud" (New York Times Nat'l ed. page C3, col. 1, Friday, October 27, 2006) click here for online access.
It is also noted in this news report that some involved in this 'industry' of buying life settlements are fretting that the public perception of their kind of business is not good. Public relations may not be an answer here, however. You just cannot make a silk purse out of a sow's ear.
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.
To see how well many sectors of Insurance are doing, click here and engage the Interactive Graphic: Sector Snapshot, Insurance. Or see the print edition in today's New York Times, on page C9 (Nat'l ed. Friday, October 27, 2006). It is worth a thousand words!
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.