Claims and Bad Faith Law Blog

$1 MILLION PUNITIVE DAMAGES FOR BAD FAITH BREACH OF INSURANCE CONTRACT.

 

In Mazik v. GEICO General Ins. Co., No. B281372, 2019 WL 2150799 (Cal. 2d DCA, Div. 2, May 17, 2019), a California jury awarded $313,508.00 in damages for delayed payment in bad faith of an Uninsured Motorist (UIM) claim.  The jury also assessed $4Million in Punitive Damages.

A California trial judge reduced the punitive damages assessment to $1 Million.  GEICO appealed only the judgment for punitive damages.

A California appellate court affirmed.  In simple and basic terms, the California appellate panel held that the evidence of insurer bad faith conduct in the record of that case was sufficient to support the judgment of bad faith including punitive damages, and the assessment fell within the constitutionally permissible range of punitive damages assessments:

          We reject GEICO’s arguments and affirm. There is sufficient evidence in the record to show that GEICO’s managing agent ratified conduct warranting punitive damages. In concluding that Mazik’s claim was worth far less than the policy limits, GEICO disregarded information provided by Mazik showing that he had a permanent, painful injury, and instead selectively relied on portions of medical records that supported GEICO’s position that Mazik had fully recovered. As reduced by the trial court, the $ 1 million in punitive damages (approximately three times the amount of compensatory damages) is within the constitutionally permitted range in view of the degree of reprehensibility of GEICO’s conduct.

Mazik v. GEICO General Ins. Co., No. B281372, 2019 WL 2150799, at *1 (Cal. 2d DCA, Div. 2, May 17, 2019).

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THE LAST DAY TO SPEAK ON THE PAYDAY LOAN RULE!

I left the following Comments with the current Consumer Financial Protection Bureau earlier today in opposition to repeal of the Payday Loan Rule.  TODAY is the deadline for your own Comments to be heard!  The contact information is all set out in my own Comments, below.

 

May 15, 2019

Consumer Financial Protection Bureau

Online at:  https://www.regulations.gov

 

Re:    Payday, Vehicle Title, and Certain High-Cost Installment Loans;

          Proposal to Rescind or Repeal the "Payday Loan Rule."

          Docket No. CFPB-2019-0006

          RIN 3170-AA80

 

To the Director of the Consumer Financial Protection Bureau:

In your proposal to rescind the Payday Loan Rule you recite that it is cost-prohibitive for you to research the evidence to support your proposal.

          Then you list ten (10) cites as source evidence in your proposal anyway.

          Four of them are SSRN Working Papers which are, by their nature known to people who use them, unpublished pieces written as proposals for a future article.  They are drafts and as such, they are not cited because they are not reliable in that form.

          Another of your sources is from "Mercatus."  Even George Mason University, where Mercatus is housed, will not allow its name to be affiliated with them.

          One involved a survey of 48 borrowers in the Southeast of one State (not even across the whole State in question).  This matches up very poorly with the over One Million Comments that the CFPB has already received on the Payday Loan Rule.

          Another is to a cite that disagrees with your proposal to rescind the Payday Loan Rule.  You cite it apparently to criticize it for not being based on "sufficient evidence" (a common refrain for the current CFPB, it appears).  To the contrary, as I found when I examined the authority that you cite, the authors of that article applied "propensity score matching" in their investigation and explicitly stated that they actually did consider alternative causes before reaching their conclusion that you reject:  "Although a variety of policies could mitigate the health consequences of these exposures, expanding social welfare programs and labor protections would address the root causes of fringe services and advance health equity."  Jerzy Eisenberg-Guyot, Caislin Firth, Marieka Klawitter, and Anjum Hajat, From Payday Loans to Pawnshops:  Fringe Banking, the Unbanked, and Health, 37 Health Affairs 429 (2018).

          Another one of your cites, you note, found "a persistent reduction in liquor sales resulting from payday lending regulations that restricted access for frequent payday loan users."  84 FR at 4293.  This seems at odds with your conclusion that the authors of that article are of the opinion that the effects of regulating payday loans are "not clear."  Id.

          You describe another of your cites as based on a small sample that did not distinguish among types of loans including payday loans.

          That leaves your one cite, which you describe as using "a self-selected sample" to find that getting financial advice "is associated with less payday loan use, but that seeking debt counseling is correlated with a higher chance of payday loan use."  84 FR at 4293-4294.   This does not support your proposal to rescind the Payday Loan Rule.  It is evidence against it.

          In short, the evidentiary basis for rule-making here is definitely in support of retaining the Payday Loan Rule and against rescinding it without replacing it with something better in terms of consumer financial protections.  Your proposal does not replace the Payday Loan Rule with anything.  Your proposal to rescind the Payday Loan Rule is contrary to law and to the evidence and should be withdrawn.

          Thank you for your consideration.

Sincerely,

Dennis Wall

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COMMENT BY MAY 15 ON REPEALING THE PAYDAY LOAN RULE!

I left the following Comments with the current Consumer Financial Protection Bureau earlier today in opposition to repeal of the Payday Loan Rule.  Tomorrow is the deadline for your own Comments to be heard!  The contact information is all set out in my own Comments, below.

May 14, 2019

Consumer Financial Protection Bureau

Online at:  https://www.regulations.gov

 

Re:    Payday, Vehicle Title, and Certain High-Cost Installment Loans;

          Proposal to Rescind or Repeal the "Payday Loan Rule."

          Docket No. CFPB-2019-0006

          RIN 3170-AA80

 

To the Director of the Consumer Financial Protection Bureau:

 

1. From the beginning, the Payday Loan Rule has never been what you call a "2017 Final Rule."

Throughout the Comments I am going to make, I refer to the Payday Loan Rule as the Payday Loan Rule, which is what it is.  Your labeling the Payday Loan Rule a "2017 Final Rule" is misleading and unacceptable.  It makes it seem that you issued the Payday Loan Rule on your watch in 2017 and you simply changed your mind about it two years later.  That is not what happened.

        The Payday Loan Rule was proposed on June 2, 2016.  It was published in the Federal Register on July 22, 2016.  It received over one million (1,000,000) Comments since then.

        It was only finalized based on research and the evidence in November 2017.  The CFPB was not under the control of the current federal government at that time.

2.  The reason behind your proposal to repeal the Payday Loan Rule is not that the Rule eliminated payday             loans; it did not. The reason behind your proposal to repeal the Rule is instead that the Rule made "payday     loans" an unfair and abusive practice when the loans were extended to the consumers "without reasonably determining that consumers have the ability to repay those loans according to their terms[.]"

There is a problem with payday loans that calls for consumer protection, as you recognize yourself by stating that you are now "proposing a different approach to determining whether consumers can reasonably avoid the substantial injury that the Rule determined is caused or likely to be caused by the failure to underwrite these loans."  84 F.R. at 4253.

          This proposal to rescind the Payday Loan Rule is not "a different approach" as you say at 84 F.R. page 4253.  To put it another way, this is not "repeal and replace" by any stretch.  This is simply "repeal."

          There is no replacement for the Payday Loan Rule yet there is a need for consumer protection in this area, which you admit.  I agree with your recognition of a need for consumer protection in this area.  I also agree with Ms. Annie McMahon's May 3, 2019 Comment asking you "How are loans designed to trap people in debt fair to consumers?"  Yet you propose no substitute protections, only repeal of the protections given by the Payday Loan Rule.  This is not rational nor sufficient for making rules.

          I further agree with the April 23, 2019 Comments of Ms. Katy Whitehouse that the Payday Loan Rule was the result of a compromise, containing "an essential consumer protection" on the one hand, while on the other hand "still allowing for consumers to have access to credit, including longer-term installment loans and lines of credit."  She pointed out a crucial fact that you have not pointed out at all in your subject proposal to rescind the Payday Loan Rule and restore the extension of these predatory loans without any safeguards for the consumers involved in them:  "Because lenders have access to borrowers' checking accounts on payday or their car titles, lenders have the ability to collect even though most borrowers do not have the means to repay."  (Emphasis added.)   By restricting its narrow focus to only those payday loans that are made "without reasonably determining that consumers have the ability to repay those loans according to their terms," the Payday Loan Rule struck a reasonable compromise between preserving the inherent protections in these loans of lenders' ability to collect and the new feature introduced by this Rule of offering at least some protection to borrowers who do not have the ability to repay by requiring payday lenders to inquire whether the consumers of their loans have the capacity to repay them.

        Your proposed repeal of this compromise is neither rational nor narrowly tailored to any valid governmental interest in this area.

        Finally, I also agree and submit once again to your renewed consideration the Comments posted by Mr. Nathan Moles on February 15, 2019, the day after your proposed rescission was published in the Federal Register.  He pointed out that the source you cite for your legal authority, the Dodd-Frank Act, allows the CFPB to include "'established public policies'" in the evidence that the CFPB considers in its own rule-making in the same area.  Mr. Moles suggested specifically but without limitation, the example of the Military Lending Act of 2006, and he gave you the cite for your ease of reference, 32 CFR 232.3(g)(2).  Yet you have failed to mention this authority, which of course runs counter to your ambitions to rescind the Payday Loan Rule.

        For all of these reasons, your proposal to rescind the Payday Loan Rule is unsupported and insupportable by any evidence.  It is not authorized and it is not good public policy.  To the contrary, it is your proposal that should be withdrawn in the face of all the evidence, not the Payday Loan Rule.

        Thank you for your consideration.

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COMPLEX COMMERCIAL CONTRACT COURTS: DECLARATORY JUDGMENTS JURISDICTION OVER BAD FAITH?

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

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

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

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

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NOT BARRED, INVITED: WILLIAM P. BARR AND THE AMERICAN LAW INSTITUTE.

"The American Law Institute is the leading independent organization in the United States producing scholarly work to clarify, modernize, and otherwise improve the law."  That is how the American Law Institute or ALI for short, describes itself on its website's landing page, About ALI at https://www.ali.org/about-ali/.

The ALI invited William P. Barr to speak at its Annual Meeting this year.  In about ten days or so, Mr. Barr will address the membership of the ALI at the organization's Annual Dinner and Reception, at $125.00 apiece.

"By participating in the Institute's work, its distinguished members have the opportunity to influence the development of the law in both existing and emerging areas, to work with other eminent lawyers, judges, and academics, to give back to a profession to which they are deeply dedicated, and to contribute to the public good."

Anyone paying attention knows that William P. Barr has not distinguished himself by working to "improve the law" or by working "with other eminent lawyers, judges, and academics" or anyone else that you can name "to contribute to the public good."

Mr. Barr may be "deeply dedicated" but it is not to the legal profession.

The ALI did not ask its membership if William P. Barr should be invited to speak to us at our Annual Meeting.  Let alone to pay for the privilege for a price of $125.00 a head.

So a modest proposal here.  Since he's coming to speak, "leverage" William P. Barr's appearance at the ALI this month to generate a contribution to the public good:  As a member of the ALI, I call upon ALI leadership to donate the proceeds it makes from Mr. Barr's Annual Dinner appearance to at least one Legal Aid Society in each of the 50 States, the District of Columbia, and Puerto Rico.  In particular to Legal Aid in States along the U.S.-Mexico border where Barr's Department of Justice enables and perpetrates so many injustices. 

And if William P. Barr is charging for addressing the ALI, then the ALI leadership must donate an equivalent amount as well to Legal Aid.

They need the money.  William P. Barr does not.

This article is being posted simultaneously on Claims and Issues Blog, https://claimsissues.typepad.com/, and on Claims and Bad Faith Law Blog, https://insuranceclaimsbadfaith.typepad.com/.

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THEY'RE BACK!!! CREATIVE FINANCING, DILAPIDATED HOUSING, AND BAD FAITH!

Selling houses without making them habitable looks, sounds, and smells like Bad Faith.  Even when they are sold at "instant buying" prices over the internet.  See Ben Casselman and Conor Dougherty, Looking For a Fast Sale?  Silicon Valley is Buying, New York Times, Wednesday, May 8, 2019, p. B1.

Haven't we seen this movie as they say?  Maybe it was so good -- for some -- that they had to do it again.

What title shall we put on this, say, "Great Recession II"? 

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ILLINOIS COURTS CONFIRM INSURED'S OWN INDEPENDENT COUNSEL PAID BY INSURER.

In Xtreme Protection Serv's, LLC v. Steadfast Ins. Co., ___ N.E.3d ___, No. 1-18-1501, 2019 WL 1976482, 2019 IL App (1st) 181501 (Ill. 1st DCA, 6th Div., May 3, 2019) (stated Not Final), the Illinois District Court of Appeal applied the prevailing test in Illinois for whether the insured is entitled to have its own independent counsel at the expense of the liability carrier.

The Court applied the settled test of asking "whether the insurer's interests would be furthered by providing a less-than-vigorous defense" to the allegations in the underlying case against the insured.

If the answer to that question is in the affirmative, then the carrier has the responsibility to pay for the insured's independent defense counsel and loses the right to provide defense counsel of its own choosing.

The trial judge applied the same test and, in a relatively rare procedural ruling, entered judgment on the pleadings in favor of the insured.

The appellate court applied the same test, as noted, and affirmed.

This test is gathering adherents outside of Illinois.  See generally 1 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith, § 3:7 Informing the Insured:  Providing Independent, "Mutually Agreeable" Counsel to the Insured (3d edition Thomson Reuters West, 2019 Supplements in process).

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NEW YORK UIM CLAIM: TRIABLE CONTRACT BREACH, NOT BAD FAITH.

In Liang v. Progressive Cas. Ins. Co., 2019 WL 1925954 (N.Y. App. Div., 2d Dep't, Feb. 5, 2019), the appellate court agreed with the trial court that there are "triable issues of fact" on the Underinsured Motorist Claim that Mr. Liang filed as administrator of his mother's estate.

The appellate court also agreed with the trial court that under New York standards of insurer bad faith, "[h]ere, Progressive established, prima facie, that it did not act in bad faith, since its conduct, under the circumstances, did not constitute a gross disregard of Liang's interests."

The appellate court continued:

Progressive conducted an investigation and had an arguable basis for disclaiming coverage (citations omitted). In opposition, the plaintiff's conclusory assertions failed to raise a triable issue of fact as to whether Progressive's conduct constituted a gross disregard of Liang's interests (citations omitted).

The only disagreement between the appellate court and the trial court in this case was that the appellate court ordered that Progressive's motion for summary judgment should have been granted on the bad faith claim, and not simply that the bad faith claim should be dismissed.  Liang v. Progressive Cas. Ins. Co., 2019 WL 1925954, at *3 (N.Y. App. Div., 2d Dep't, Feb. 5, 2019).

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LESSONS ON SECRET SETTLEMENT NEGOTIATIONS FROM A PRO SE CASE.

A pro se Fair Labor Standards Act case may have some lessons for keeping settlement offers secret in insurance bad faith cases.

In Chenault v. Randstad USA Mfg. & Logistics,[1] Mr. Chenault, representing himself without a lawyer, filed a "Motion to Facilitate Settlement."  He attached "the settlement offer" or, alternatively, "the settlement letter" that he got from the defendants, using the judge's descriptions of the letter.

The defendants asked the judge to seal the letter and so keep the public from viewing the letter in the Court file. 

The reason that the judge gave for sealing the "settlement letter" in this case reveals a lot about how the law treats the secrecy of settlement negotiations.  She ruled:

Because “[t]here exists a strong public interest in favor of secrecy of matters discussed by parties during settlement negotiations,” the Court will Order the Clerk of the Court to place the settlement letter under seal in order to preserve the record. Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976, 980 (6th Cir. 2003). The Court will not consider the settlement letter for any purpose.[2]

Substitute an insurance company accused of bad faith in the place of the defendants in this case, and the lessons of secret settlement negotiations is clear:  Settlement negotiations of the case at bar are a secret.  Period.

The author is currently at work on 2019 Supplements to both volumes of his Book, Litigation and Prevention of Insurer Bad Faith (Third Edition, Thomson Reuters West), including sections on secrecy and settlements. 

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[1] Chenault v. Randstad USA Mfg. & Logistics, No. 5:18-CV-276-KKC, 2018 WL 3964811 (E.D. Ky. August 17, 2018).

[2] Chenault v. Randstad USA Mfg. & Logistics, No. 5:18-CV-276-KKC, 2018 WL 3964811, at *2 (E.D. Ky. August 17, 2018) (emphasis added).

 

FORECLOSURE DAMAGES FOR BAD FAITH.

In Shawnee Tabernacle Church v. Guideone Ins., No. 16-5728, 2019 WL 1779829, at *1 (E.D. Pa. April 23, 2019), the Court was confronted with a water loss and claims of breach of contract and insurer bad faith.  The questions addressed in this particular decision were two:  (1) Are damages for foreclosure recoverable here, and (2) What is the proper measure of those damages?

The Court's answers in this case were, first, that damages resulting from foreclosure are a form of consequential damages and are recoverable in such a case.

Second, the proper measure of damages here is the diminution in fair market value of the property as a result of the foreclosure.

To rephrase Mr. William Faulkner's famous phrase about the past, 'Foreclosure isn't dead.  It isn't even past.'

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CALIFORNIA MAGISTRATE JUDGE ENFORCES CONFIDENTIALITY CONTRACT IN DEFENDANT'S PROTECTIVE ORDER.

In Bell N. Res., LLC v. ZTE Corporation, No.: 18cv1786-CAB(BLM), 2019 WL 1590472 (S.D. Cal. April 12, 2019) (Major, USMJ), ZTE sought a protective order that would prevent BNR's expert witness from testifying to information that ZTE and its lawyer declared confidential under ZTE's employment contract with BNR's expert.  Confused yet?

First, ZTE retained the person who would later become BNR's expert witness in a lawsuit that BNR would later file against ZTE.  The employment contract contained a confidentiality provision.

Next, BNR sued ZTE and BNR proffered the same person as its expert witness.

Then, ZTE filed what it called a motion for protective order, along with its lawyer's declaration testifying on behalf of ZTE, to prevent the expert witness from testifying to anything deemed "confidential" under the confidentiality provision in its contract with the expert.

Got it?  Okay.  So, ZTE was asking the federal court to enforce the confidentiality provision in its contract with the person whom BRN proffered as BNR's expert against ZTE.

A magistrate judge in California agreed to do that.  The California magistrate judge granted ZTE's motion and barred the witness from testifying to anything that ZTE and its lawyer deemed "confidential" under the witness's prior employment contract with ZTE.

Under this reasoning, no whistle-blower could ever testify in a civil action against her former employer if the whistle-blower would testify to anything the employer deemed "confidential" and if there was a confidentiality provision in the employment contract, which of course there usually is.  Confidential information is the whole reason for the whistle-blower testifying in the first place, so this holding would really prevent the whistle-blower's testimony.

What a ruling.  How fortunate ZTE seems to have been in drawing this ruling.

How unfortunate for the public who deserve to hear the whole story, and how unfortunate for whistle-blowers who want to tell the whole story in their testimony in court.

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THEY HUNG UP ON THE STIPULATED SECRECY ORDER.

In AT&T Corp. v. Speednet-Sem LLC, No. 18-12791, 2019 WL 1532359 (E.D. Mich. April 9, 2019), because the defendant took so long to eventually say "no" to AT&T's proposal for its stipulated protective order, the time passed for AT&T, a plaintiff in this case, to amend its complaint.

Undaunted, AT&T filed a motion for leave to file its amended complaint late.  The federal court granted AT&T's motion in this case.

But that is not the most noteworthy thing about this case.  Not at all.

The most noteworthy thing about this case in my eyes is that somebody said "no" to a stipulated protective order.

It will be interesting to see what kind of information the public may be able to access without the barrier of a stipulated umbrella protective order to stop us.

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LENDER FORCE-PLACED INSURANCE BAD FAITH IN THE 21st CENTURY.

Many cases present lender force-placed insurance (LFPI) claims based on alleged recent LFPI practices.  In these cases, homeowners are successful in alleging at least some claims that their lenders and the lenders' servicers and force-placed insurance carriers add kickbacks and other unauthorized, unnecessary charges to the homeowners' monthly mortgage payments.  See, e.g., Alpert v. Nationstar Mort. LLC, Case No. C15-1164 RAJ, 2019 WL 1200541, at *2 (W.D. Wash. March 14, 2019) (alleged LFPI policies from July 2012 through July 2016); Hibbs v. Wells Fargo Bank, N.A., No. 17-615-SDD-RLB, 2018 WL 3245050, at *2 (M.D. La. July 3, 2018) (lender force-placed flood insurance in 2016).

Some of these successful claims include alleged bad faith and unfair dealing.  E.g., Gray v. CIT Bank, N.A., No. 18-1520 (RMB/AMD), 2018 WL 6804273, at *1-*2 (D.N.J. Dec. 27, 2018) (alleged LFPI practices from 2011 through 2017); cf. Wieck v. CIT Grp., Inc., 308 F. Supp. 3d 1093, 1120 n. 14 (D. Haw. 2018) (dismissing bad faith claims because there is no independent tort of "bad faith" in a "non-insurance" context under Hawaii law, but granting leave to amend breach-of-contract claim to include same allegations of bad faith and unfair dealing; case concerned allegedly unnecessary hurricane insurance placed in 2013 and backdated to 2011-2013).

The author is currently at work on an article about "'Quiet in the Courts!' Concealed Evidence and Secret Settlements:  The Lender Force-Placed Insurance Model."

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JPMORGAN, NIGERIA'S MONEY, LONDON LAWSUIT. BAD FAITH? NOT APRIL FOOL'S!

A British case raises an intriguing question for American insurance bad faith litigation.

Under British law, a bank has a duty to act in the best interests of its customers.  The Nigerian government is suing JPMorgan Chase on the ground that the bank allegedly obeyed the instructions of corrupt former officials to transfer some $900 Million to them from a Nigerian government bank account maintained at JPMorgan Chase in London.  The Nigerian government is of the opinion that this was against the best interests of the bank's customers, the people of Nigeria.

JPMorgan Chase is defending this complicated case on many grounds.  One of its defenses raises the intriguing question that may have some resonance in American insurance bad faith lawsuits:  JPMorgan Chase is defending on the basis that its contract setting up the Nigerian government account provided that JPMorgan Chase could act against the best interests of the bank's customers, the people of Nigeria.

Does this mean that an insurance carrier in the United States could insert a provision in its insurance policy that, effectively, it could act in bad faith and deal unfairly with its insureds?

Well, returning to the lawsuit in the U.K. for a moment, the British judge so far is allowing the Nigerian government's lawsuit to proceed against JPMorgan Chase.  Its contract provision has not prevented that, at least so far.  See Emily Flitter, Nigeria Sues JPMorgan to Recoup $900 Billion, New York Times, Monday, April 1, 2019, p. B1 (no online version found; when posted online the New York Times may charge for online access to this article).

As for the question of an American insurance carrier inserting a provision in its insurance policy to disavow any duty of good faith and fair dealing, there is some authority on that.  We will take a look in future articles posted here.

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

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

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

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

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

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

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

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

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CONSUMER PROTECTION CLAIMS FOR INSURER BAD FAITH.

Consumers have a right of action under Washington's Consumer Protection Act against their insurance carriers for breach of the duty of good faith and fair dealing, i.e., for insurer bad faith.  This rule has been applied recently against a health insurance carrier accused of failing to deliver the insurance services for which it charged insurance premiums approved by the Washington State Office of the Insurance Commissioner.

In particular, the plaintiff-policyholder alleged that the defendants' "unfair or deceptive acts or practices in conducting its insurance business" consisted in pertinent part of failing to have in-network providers as represented, and failing to provide coverage represented by the defendants to be within the plan.  Harvey v. Centene Mgt., Co. LLC, ___ F. Supp. 3d ___, No. 2:18-CV-00012-SMJ, 2018 U.S. Dist. LEXIS 198773, at *13-*14, 2018 WL 6112407, at *4 (E.D. Wash. Nov. 21, 2018).

Interested in current events?  Take another look: READ BARR'S LETTER LIKE A  LAWYER LIKE BARR from our sister blog, Claims and Issues.

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CONSUMER PROTECTION CLAIMS OVER AARP'S MARKETING OF MEDIGAP INSURANCE POLICIES: ....

THE FILED RATE DOCTRINE IS NO BAR, EVEN ASSUMING THAT IT APPLIES TO INSURANCE CASES.

A 2-to-1 decision last year by a panel of the Eleventh Circuit Court of Appeals, Patel v. Specialized Loan Servicing, LLC, 904 F.3d 1314 (11th Cir. 2018), may not mean what you think it does.

The Patel panel decision has often been put into an argument that goes something like this:  Courts have no business changing filed rates that have been approved by authorized regulatory agencies.  The federal filed rate doctrine forbids it.  Insurance claims are regulated by states, so the filed rate doctrine bars claims that involve filed insurance rates approved by state insurance commissioners authorized to approve them.

That is not what Patel stands for.

On St. Patrick's Day 2019, the Chief Judge of a U.S. District Court pointed out that Patel stands only for applying a filed rate doctrine where the complaints at issue challenge the amount of the approved insurance rate (assuming for purposes of decision that the state recognizes a filed insurance rate doctrine):

In reaching this conclusion, the Eleventh Circuit focused on “[t]he most obvious basis,” id. at 1325, namely, “the fact that the plaintiffs repeatedly state that they are challenging [the insurance company’s] premiums,” id. at 1325–26, using language targeting “artificially inflated premiums,” “unreasonably high force-placed insurance premiums,” and “amounts charged for insurance coverage,” id.at 1326, such that “[t]he plain language of the complaints therefore shows that the plaintiffs are challenging the reasonableness of [the insurance company’s] premiums; and since these premiums are based upon rates filed with state regulators, plaintiffs are directly attacking those rates as being unreasonable as well,” id. The court described these claims “directly challenging the rates ... filed with state regulators” as “textbook examples of the sort of claims that we have previously held are barred by the nonjusticiability principle.” Id.

    The other circuit cases on which the defendants rely are distinguishable from the plaintiff’s claims for precisely the reason Patel is: in each case, the plaintiffs directly challenged the filed rate.

Krukas v. AARP, Inc., ___ F. Supp. 3d ___, No. 18-1124 (BAH), 2019 WL 1243864, at *12-*13 (D.D.C. March 17, 2019) (Howell, Chief Judge). 

In Krukas in contrast, "the Complaint at issue does not challenge the amount of the Medigap insurance rate or the amount collected by the insurance provider [UnitedHealth] that has been approved by state insurance agencies."  Krukas v. AARP, Inc., ___ F. Supp. 3d ___, No. 18-1124 (BAH), 2019 WL 1243864, at *13 (D.D.C. March 17, 2019).  Other courts in other cases filed over AARP's collection of what it calls a "royalty" and plaintiffs call an unauthorized "commission" have reached different results over whether a filed rate doctrine applies, "but closer scrutiny shows this is due to differences in the claims asserted."   Krukas v. AARP, Inc., ___ F. Supp. 3d ___, No. 18-1124 (BAH), 2019 WL 1243864, at *13 (D.D.C. March 17, 2019).

Even assuming that the District of Columbia would impose a filed rate doctrine in insurance cases (an open question), the District Court had little problem in refusing to apply a filed rate doctrine in this case against AARP, and in which the insurance provider that charged and collected an apparently approved rate was not even made a party:

This reasoning is easily distinguishable since the instant suit is not filed against UnitedHealth and does not challenge the legality of the approved rates charged by UnitedHealth. Rather, the plaintiff’s claims challenge AARP’s practices and disclosures regarding the defendants' retention of a portion of the rates UnitedHealth filed.

Krukas v. AARP, Inc., ___ F. Supp. 3d ___, No. 18-1124 (BAH), 2019 WL 1243864, at *14 (D.D.C. March 17, 2019).

Parenthetically, I say "apparently approved," because as the Court itself noted in the Krukas case, it would not consider exhibits proffered by the defendants at the motion-to-dismiss stage which "would be premature."  Neither the defendants nor the Court wanted to treat the defendants' motion to dismiss as a motion for summary judgment "without a full record" regarding the information filed by the carrier with the insurance regulator.  Instead, at the motion-to-dismiss stage "the Court looks only to the plaintiff's Complaint" in that case.  Krukas v. AARP, Inc., ___ F. Supp. 3d ___, No. 18-1124 (BAH), 2019 WL 1243864, at *11 (D.D.C. March 17, 2019).

In sum, the filed rate doctrine is not in our stars, so to speak, it is in the claims that are alleged.  The filed rate doctrine does not apply to conduct and practices that "are independent of any approved rates."  The FRD does not exist when "resolution of these claims ... does not necessitate any determination about the reasonableness of the rate."  Krukas v. AARP, Inc., ___ F. Supp. 3d ___, No. 18-1124 (BAH), 2019 WL 1243864, at *15 (D.D.C. March 17, 2019).  So take a look at what is alleged and what is proffered before a Court rules on the filed rate doctrine. 

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EQUITABLE CONTRIBUTION BETWEEN INSURERS IN FLORIDA: DEFENSE? "NO," INDEMNITY? "YES."

Or at least one Federal Judge just said so in Lawrence v. ACE Am. Ins. Co., No. 8:18-cv-738-T-24, 2018 WL 6192190, at *8-*9 (M.D. Fla. November 28, 2018):

    ACE moves to dismiss this claim, arguing that Florida does not recognize a cause of action for equitable contribution between co-insurers. The flaw in this argument, however, is that Florida does not recognize a cause of action for equitable contribution by co-insurers in order to recover defense costs. [Federal citation omitted.]  USAA is not seeking to recover its defense costs in the underlying litigation, and as such, this argument for dismissal has no merit.

     Florida does recognize a cause of action for equitable contribution by co-insurers for the amounts the insurer paid to indemnify the insured. 

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PAYDAY LOAN RULE PROPOSED DELAY.

HAPPY ST. PATRICK'S DAY!  On Saturday, March 16, 2019 I left these Comments on the CFPB's proposed new rule which would stay the 2017 Payday Loan Final Rule from taking effect.  The last day to leave YOUR Comments on this particular proposed new rule is Monday, March 18, 2019.

The CFPB has proposed a separate rule to repeal and replace the Payday Loan Rule.  Leave your Comments on that proposed rule by May 15, 2019.  It is Docket No. CFPB-2019-0006-0001 on https://www.regulations.gov.

 

March 16, 2019

 

Consumer Financial Protection Bureau

Online at:  https://www.regulations.gov

 

Re:    Payday, Vehicle Title, and Certain High-Cost Installment Loans;

          Delay of Compliance Date proposed rule.

          Docket No. CFPB-2019-0007

          RIN 3170-AA95

 

To the Director of the Consumer Financial Protection Bureau:

 

The Payday Loan Final Rule took effect on January 16, 2018.

          Your proposed postponement of its operative date was the subject of a "statement" which the CFPB did not issue until January 16, 2018.  A proposed rule for postponement of the Payday Loan Final Rule's operative date was published in the Federal Register more than a year after that, on February 14, 2019.

          Parenthetically, the CFPB also published a proposed rule on February 14, 2019, to repeal and replace the Payday Loan "addressing reconsideration of certain provisions" which you "published separately in this issue of the Federal Register."  84 F.R. at 4298.

 

1. As a matter of settled law, the Administrative Procedure Act does not permit an agency to effectively repeal a final rule simply by postponing its operative date. Therefore your proposed rule to postpone the operative date of the Payday Loan Final Rule is prohibited by the APA.

 

"The APA does not permit an agency to 'guide a future rule through the rulemaking process, promulgate a final rule, and then effectively repeal it, simply by indefinitely postponing its operative date.''  California v. U.S. Bureau of Land Mgt., 277 F. Supp. 3d 1106, 1121 (N.D. Cal. 2017), dismissed by agreement after mediation, 2018 WL 2735410 (9th Cir., March 15, 2018) (Corrigan, Circuit Mediator).  For the reason that the Administrative Procedure Act prohibits the postponement you have proposed in the subject rule, the CFPB's proposed stay rule is void.

 

2. The CFPB's claim to "discretion" does not preempt the Administrative Procedure Act and the serial claims of current Federal agencies to "proposed compliance date delays" are all subject to the APA including this one.

 

The CFPB's proposed new rule relies on "discretion" as its "Legal Authority" for what the CFPB calls "proposed compliance date delay."  There is no such discretion and what the CFPB is doing here is subject to the Administrative Procedure Act.

          The proposed new rule relies for its "Legal Authority" for its claim to "discretion," on Section 1031 of the Dodd-Frank Act "and each of the other legal authorities" cited in the CFPB's 2017 Final Rule.  If the "other legal authorities" actually existed that are now broadly claimed to support discretion in the CFPB's proposed new rule, now is the time to tell them.  See Bauer v. DeVos, 325 F. Supp. 3d 74, 108-09 (D.D.C. 2018) ("The arbitrary and capricious standard of the APA, however, requires that agencies 'provide an explanation that will enable the court to evaluate the agency's rationale at the time of decision.'").  If the authorities are not stated by the CFPB in its proposed new rule, then for purposes of the APA they do not exist.

          Section 1031 of the Dodd-Frank Act specifically provides as follows regarding rulemaking:

SEC. 1031. PROHIBITING UNFAIR, DECEPTIVE, OR ABUSIVE ACTS OR PRACTICES.

(a) IN GENERAL.—The Bureau may take any action authorized under subtitle E to prevent a covered person or service provider from committing or engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.

 (b) RULEMAKING.—The Bureau may prescribe rules applicable to a covered person or service provider identifying as unlawful, unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. Rules under this section may include requirements for the purpose of preventing such acts or practices.

 

There is absolutely nothing about this statutory authorization to make rules that affords any agency "discretion" about changing the date for compliance with a previously issued Final Rule.

         The CFPB's invocation of the above-quoted Section 1031 illustrates the major point that the CFPB, as a creation of Congress, has limited authority.  An agency has only the authority conferred by Congress, and the powers necessarily implied from that authority.  Delaying the date for compliance with an established Final Rule is not among the powers necessarily implied from the rulemaking authority conferred upon the CFPB in Section 1031, quoted above.

        Since the CFPB lacks the "discretion" it claims as its Legal Authority to issue the subject proposed new stay rule, the subject proposed new stay rule is void and of no effect.

        More specifically, the recurring issue of "proposed compliance date delay" is an issue subject to the Administrative Procedure Act.  Internet searches have revealed what appears to be a serial use of this phrase in new rules proposed by agencies of the current Federal Government, all seemingly contained in attempts to delay or repeal pre-existing Final Rules, as here.

        To date, I was able to find one proposed rules change dated before 2017.  In 2003, the Office of Comptroller of the Currency claimed, without authority, that it would change the compliance date on a previously issued Final Rule.  An unchallenged OCC rule is not precedent.  Parenthetically, the OCC did not even bother to invent uncited "Legal Authority" to support its proposed power grab in its proposed rules change in 2003.

 

3.  The CFPB's proposed postponement rule is arbitrary and capricious because it clearly was not written to stay pending litigation but instead it was plainly written to stay the rules pending reconsideration. This is impermissible under the APA and so the CFPB's proposed stay or postponement rule is void.

 

Although the CFPB's proposed stay rule does not say it, presumably the CFPB is relying on the stay authority found in 5 U.S.C.A. § 705.  As you know, 5 USCA § 705 provides for a stay pending judicial review, but it requires a finding "that justice so requires[.]"  The CFPB's subject proposed stay rule is arbitrary and capricious because it plainly does not relate to a stay pending litigation but instead it clearly recites that it was written to stay the rules pending reconsideration of the 2017 Final Rule.

         The subject proposed rule does not even say that a stay pending litigation is the reason why the proposed stay rule was written.

         The subject proposed stay rule cannot provide for a stay pending judicial review under Section 705 because the litigation in question mentioned by the CFPB in its proposed stay rule, Community Fin. Serv's Ass'n of Am., Ltd. v. Consumer Fin. Prot. Bureau, (W.D. Tex. Case No. 1:18-cv-00295-LY), has been stayed as the CFPB mentioned.  84 F.R. at 4298 n.5, referencing Docket No. 29, the Court's Order filed on June 12, 2018 reciting in part that "this action is STAYED pending further order of the court."   The same Court entered a later order concluding "that the stay of litigation in this action ordered June 12, 2018, should be continued in full force and effect."  That Court's stay of litigation is still in full force and effect, unchanged by any further order after a review of the Clerk's electronic docket.

        That Court also purportedly stayed the effective date of the 2017 Payday Loan Final Rule.  Community Fin. Serv's Ass'n of Am., Ltd. v. Consumer Fin. Prot. Bureau, Dkt. No. 53, Order, filed November 6, 2018 (W.D. Tex. Case No. 1:18-cv-00295-LY).

          For all these reasons, the CFPB's proposed stay rule is arbitrary and capricious and therefore void and of no effect:

While there is no prohibition against having more than one justification for invoking Section 705, provided that one of them meets the statutory requirements, [the agency defendants] must show that they properly invoked the statutorily required ground of "pending judicial review."  Defendants have not done so here.

California v. U.S. Bureau of Land Mgt., 277 F. Supp. 3d at 1122.

 

 

4. The CFPB's proposed stay rule is arbitrary and capricious because (1) costs of compliance are an insufficient basis for a stay of an agency's final rule, and (2) "more immediate compliance dates" required by States does not give any reason to postpone the Federal Government's Payday Loan Final Rule.

 

Alternatively and cumulatively, the CFPB's proposed stay rule is arbitrary and capricious because it only takes into account the costs to the industry of complying with the Rule and completely ignores the benefits that would result from compliance.  California v. U.S. Bureau of Land Mgt., 277 F. Supp. 3d at 1122.

         The CFPB's proposed stay rule does not even set out a finding by the agency that justice requires the stay.  Instead, in the proposed rule the CFPB offers two asserted reasons for a stay.  The first reason is cost to the industry of compliance with the already-established final rule.  Costs of compliance are an insufficient basis for a stay of an agency's final rule.  In addition to the   California v. U.S. Bureau of Land Management decision which has already been mentioned, see, e.g., Bauer v. DeVos, 325 F. Supp. 3d at 107-08:  "The mere fact that parties would avoid the costs of complying with the existing regulations, however, is plainly insufficient to support a § 705 stay."

        The CFPB's second asserted reason for the proposed stay rule is that some States have adopted similar requirements under State law which have "more immediate compliance dates."  84 F.R. at 4299.  This is not a good reason, either, for a stay of the Federal Government's rule with a later compliance date.

        In sum, the proposed stay rule is really a reflection of an agency's change in position due to a change in the people in power.    An unacknowledged and unexplained inconsistency "is the hallmark of arbitrary and capricious decision-making."  Bauer v. DeVos, 325 F. Supp. 3d at 109. 

Conclusion.

For each and all of the foregoing reasons, whether taken separately or together, the CFPB's subject proposed stay rule is arbitrary and capricious.  As such, it is prohibited by the Administrative Procedure Act as was the case in earlier challenged iterations of much the same type of recent "rulemaking" by other Federal agencies, which Federal Courts have struck down. 

        Thank you for your consideration.

Sincerely,

Dennis Wall

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DUTY TO DEFEND ARBITRATION? YES, IN THIS CASE.

In Gemini Ins. Co. v. Constrx Ltd., NO. 14-00355 DKW-RLP, 2018 WL 7508264 (D. Haw. September 24, 2018), the Court determined that a commercial general liability carrier owed a duty under its liability insurance policy to defend its policyholder in an arbitration.  The reason?  The policyholder could be subjected to liability and the liability policy had to provide defense coverage as a result.  Simple as that, the Court ruled in effect.

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HERE THERE'S POTENTIAL LIABILITY, SO HERE THERE'S DEFINITELY LIABILITY COVERAGE.

In Metropolitan Prop. & Cas. Ins. Co. v. Auto-Owners Mut. Ins. Co., ___ N.W.2d ___, No. 18-0129, 2019 WL 1086599 (Iowa March 8, 2019), two liability insurance carriers covered two at-least-nominally separate insureds.

One carrier issued what was described by the Court as a CGL policy to a limited liability company that owned a farmhouse.

The other carrier issued a homeowner's policy to at least one of the co-founders of the LLC.  The co-founder was also apparently insured under the CGL policy as an officer of the LLC.

A loaded rifle was left at the farmhouse for several months.  As loaded rifles will do, it accidentally discharged into a human being, killing him.

The Homeowner's carrier and the individual insured together "settled the death claim for $900,000 and sued the CGL insurer for reimbursement. The case proceeded to a bench trial, and the district court entered judgment against the CGL insurer for $450,000, rejecting various coverage defenses."  Metropolitan Prop. & Cas. Ins. Co. v. Auto-Owners Mut. Ins. Co., ___ N.W.2d ___, No. 18-0129, 2019 WL 1086599, at *1 (Iowa March 8, 2019).  On appeal to the Supreme Court of Iowa (bypassing the Iowa intermediate appellate court for some reason known only in Iowa perhaps), the Supreme Court of Iowa affirmed.

The Supreme Court looked at the coverage dispute this way:

    The principal fighting issue is whether the LLC, as owner of the farmhouse, had potential liability under a premises liability theory for a dangerous condition (the loaded, unsecured rifle left on a bed for several months). On our review, we conclude the district court correctly interpreted the CGL insurance contract, and its factual findings on potential liability and the reasonableness of the settlement are supported by substantial evidence. For the reasons explained below, we affirm the district court judgment.

Metropolitan Prop. & Cas. Ins. Co. v. Auto-Owners Mut. Ins. Co., ___ N.W.2d ___, No. 18-0129, 2019 WL 1086599, at *1 (Iowa March 8, 2019).  That view of things naturally disposed of the CGL carrier's appeal.  Where as here liability coverage follows potential liability, the likely result is pretty clear.

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BAD FAITH IN THE NEW YORK ORGANIZATION?

Because Aon did business with Donald J. Trump and the Trump Organization, it was served with a 9-page subpoena on March 4, 2019.  The return date on the subpoena is March 19.

The subpoena was served by the New York State Department of Financial Services.  It requested documents from the insurance broker, Aon, going back 10 years, including:

• "copies of all communications between Aon and Mr. Trump and the Trump organization"
• "all internal Aon documents relating to Mr. Trump and the company"
• "[records of] compensation for the current and former Aon employees who handled the Trump Organization account," including "information about their incentives, bonus payments or commissions."
• "[S]imilar contracts and agreements between Aon and Mr. Trump."

See William K. Rashbaum and Ben Protess, Trump Businesses Draw Scrutiny From New York Over Insurance Policies, New York Times, Wednesday, March 6, 2019, p. A16 (the New York Times may require a subscription for access to the online version, https://www.nytimes.com/2019/03/05/nyregion/trump-aon-risk-services-subpoena.html).

This subpoena sounds an awful lot like the document requests I have dealt with for over 40 years in Insurance Bad Faith cases.

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ET TU MALA FIDES, WILBUR?

Two Federal Judges in two different Federal Courts, one in California and the other in New York, have held trials about Secretary of Commerce Wilbur Ross's attempts to add a citizenship question to the 2020 Census and thereafter to conceal his reasons for doing so.

In both cases, the District Judges found that Mr. Ross acted in bad faith.  The Federal Judge in California went further than the Federal Judge in New York did and found a violation of the United States Constitution as well as misrepresentation.  In both cases, the evidence established that Mr. Ross's excuses were made "in bad faith" and that he knew all along that putting a citizenship question on the 2020 Census would result in a census undercount, particularly among Latinos who are after all unlikely to vote for Mr. Ross's president or party:

    Commerce Secretary Wilbur Ross acted in “bad faith,” broke several laws and violated the constitutional underpinning of representative democracy when he added a citizenship question to the 2020 Census, a federal judge ruled Wednesday.  

[T]he 126-page ruling by U.S. District Judge Richard Seeborg in San Francisco went further than a similar decision on Jan. 15 by Judge Jesse Furman in New York.

Fred Barbash, Wilbur Ross Broke Law, Violated Constitution in Census Decision, Judge Rules, Washington Post Online, posted Wednesday, March 6, 2019 (the Washington Post may require a subscription for access online).

Et tu mala fides, Wilbur?

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STIPULATED PROTECTIVE ORDERS ARE OFTEN PILLS TOO BIG TO TAKE.

Unspecified claims against Bayer and other defendants, presumably other pharmaceutical companies, were filed in the United States District Court for the Northern District of California.  From there, the claims were put into Multi-District Litigation and assigned to the Southern District of Illinois, before they were sent back to the Northern District of California.

Whew.

You can tell that whatever the claims may be that this is a big case.   It is big both for the plaintiffs and for Bayer and the other defendants.  The plaintiffs' attorneys in this case come from many places in the country:  Oakland; St. Louis; Englewood, Colorado (which is near Denver); New York City; Redwood City, California; San Francisco, and San Mateo, California.

In an unusual twist the defendants' attorneys in this case hail from fewer cities:  San Francisco, St. Louis, Denver, and Chicago.

The case is Galinis v. Bayer Corp., No. 09-cv-04980-SI, 2019 WL 1024403 (N.D. Cal. March 4, 2019).

Now that the stage has been set, here's why the Galinis case is of interest to us.  The defendant Bayer filed two motions to exclude expert witness testimony that it had done something wrong, and a motion for summary judgment against a claim that it had failed to warn about the alleged bad consequences of one of its pharmaceutical products, i.e., drugs.

In opposition to these motions, the plaintiffs filed what the Federal Court in California calls "opposition documents (briefs and supporting declarations and exhibits) under seal."  Galinis v. Bayer Corp., No. 09-cv-04980-SI, 2019 WL 1024403, at *1 (N.D. Cal. March 4, 2019).

The defendant Bayer's motions and the plaintiffs' "opposition documents" were all filed when the case was pending in the Southern District of Illinois.

When this case was transferred back to the Northern District of California after that, the Federal Judge in California ruled that the parties would have to either unseal all the materials or file a motion to seal them that complies with the Local Rules of the Northern District of California.  This is the first of two reasons why this case is of interest:  Rules of Civil Procedure govern the determination of cases where they are pending, regardless of where they came from, whether from Multi-District Litigation or from Illinois.

The plaintiffs then filed a motion to seal all or some of their "opposition documents."  (Even the California Judge was not certain whether the plaintiffs were referring to all or some of these materials and, if they were referring only to some, which ones.)  The plaintiffs based their motion to seal in part on a stipulated protective order that they had entered into with Bayer and the other defendants.  The plaintiffs followed that stipulated protective order and marked some of their documents as "CONFIDENTIAL" and some as "HIGHLY CONFIDENTIAL."  That is apparently all that the stipulated protective order required in order for the plaintiffs to try to file their materials under seal.

That brings us to a second reason that this case is of importance to us:  The Court held that even when the parties agree to a stipulated protective order, that by itself is not enough to seal the record of Court proceedings.  To put it another way, the parties may agree to seal a Court File but only the Court can actually seal a Court File.

The plaintiffs' motion to seal did not comply with Civil Local Rule 79-5, purely and simply, and so their motion to seal was denied.   Galinis v. Bayer Corp., No. 09-cv-04980-SI, 2019 WL 1024403, at *2 (N.D. Cal. March 4, 2019).

To summarize, there are at least two lessons to be learned from this case:  (1) Rules of Civil Procedure govern the determination of cases in the places where they are pending, regardless of where they came from, whether from Multi-District Litigation which has its own made-up rules, or from a place like the Southern District of Illinois which also has its own rules, and (2) a stipulated protective order, which of course is contractually  agreed to by the parties, is not alone enough to seal the record of Court proceedings.

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BY ANY NAME, "SUBJECTIVE BAD FAITH" WOULD SMELL THE SAME.

In Lanard Toys Ltd. v. Dolgencorp LLC, NO. 3:15-CV-849-J-34PDB, 2019 WL 1003134 (M.D. Fla. March 1, 2019) (Barksdale, USMJ), the Court denied a defendant's request either for dismissal of the case with prejudice or alternatively for sanctions.  The defendant's motion appealed to the Court's "inherent powers."

In this case, the question of exercising the Court's inherent powers to sanction attorneys involved the standard of proof of "subjective bad faith."  The Court held in this case that it saw the attorneys' record conduct the same way, whether under a high standard of clear and convincing proof or under a lower standard more or less based on the circumstances:

Many courts require clear and convincing evidence of subjective bad faith.  [Citations omitted.]  There does not appear to be binding precedent in the Eleventh Circuit on that standard.  [Citation omitted.]  The Eleventh Circuit has held, however, that dismissal of a case is “warranted only upon a clear record of delay or willful contempt and a finding that lesser sanctions would not suffice.” Mingo v. Sugar Cane Growers Co-op of Fla., 864 F.2d 101, 102 (11th Cir. 1989) (internal quotation marks omitted) (emphasis in original).

    Here, the result would be the same whether the clear-and-convincing standard or the lesser preponderance standard applies.

Lanard Toys Ltd. v. Dolgencorp LLC, NO. 3:15-CV-849-J-34PDB, 2019 WL 1003134, at *2 n. 3 (M.D. Fla. March 1, 2019).

Nonetheless, on this record and in this case, the Court declined the opportunity to dismiss as well as the opportunity to sanction:

          Here, the circumstances described by the defendants—and uncontested or largely uncontested by Lanard—show carelessness (or maybe even professional incompetence) resulting from many documents, many markings under the protective order, different lawyers practicing in different states in different cases (this case and the bankruptcy case), and an apparent absence of protocol effective against improper disclosures. But the defendants do not show the subjective bad faith or egregious conduct required for the Court to take the unusual step of exercising inherent authority to sanction the lawyers. Dismissal of the entire case with prejudice would be particularly inappropriate under the circumstances presented.

Lanard Toys Ltd. v. Dolgencorp LLC, NO. 3:15-CV-849-J-34PDB, 2019 WL 1003134, at *2 (M.D. Fla. March 1, 2019).

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FILED RATE BARS CLAIMS, UNTIL IT DOESN'T.

A purchaser of electricity foolishly entered into a contract whereby the supplier of electricity could charge an initial rate lower than its filed rates, i.e., lower than the rates filed with the relevant regulatory authority that approved a filed rate.

After the initial rate period expired, the contract provided that the supplier could charge higher rates.  After the initial rate period expired, the supplier in fact charged higher rates.

The purchaser sued.  It asserted several grounds.  On one of them, that the supplier allegedly breached its implied duty of good faith and fair dealing, a panel of the Second Circuit held that there was no bad faith as a matter of law.  The parties contracted for an initial rate that was lower than the filed rate that the supplier was allowed to charge.  That meant there was no breach of the implied covenant of good faith and fair dealing, according to the panel deciding Connecticut law.  Richards v. Direct Energy Serv's, LLC, 915 F.3d 88, 98-100 (2d Cir. 2019).

Their reasoning as to the supplier's higher rates after the initial rate period expired is, with all due respect, circular at best.  The panel ruled that in its view the supplier obviously exercised its discretion in good faith to charge higher rates.  They pointed to evidence that other suppliers charged those high rates, and rejected the evidence that the higher rates were higher than the approved rates that the supplier could charge if it had followed the regulator's rulings.

Seriously.  That's what they said.

On remaining counts, the same panel unhesitatingly applied the filed rate as a defense to the supplier's liability for its charges.

So, in this Second Circuit panel's view, there was no filed rate, until there was.  Regardless of the filed rate, there was no bad faith here, they said.

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IDENTIFYING TRADE SECRETS AT OUTSET, MEANT SUCCESSFULLY PROTECTING REAMS LATER.

In Bombardier Inc. v. Mitsubishi Aircraft Corp., NO. C18-1543JLR, 2019 WL 858777, at *5 (W.D. Wash. February 22, 2019), Bombardier wanted the Court to protect certain categories of documents from disclosure.  Bombardier started by identifying its trade secrets, thereafter asking the Federal District Court to match the categories of documents to the trade secrets it had already identified in general terms from the beginning of the case:

[A]t this stage, Bombardier has identified its trade secrets with enough specificity that the court can determine if the disputed documents are related. In its complaint, Bombardier described technical, business, scientific, technical, economic, and engineering information that relate to its design, development, testing, evaluation, certification, and commercialization processes for its aircraft. (See generally Compl.)  According to Bombardier, “[t]his whole process—design, certification, production—is the heart of each [aircraft manufacturing] company’s competitive advantage.” (Id. ¶ 33.) Bombardier has cited numerous documents that relate to these processes, which Bombardier alleges certain defendants took while still employed at Bombardier and brought to AeroTEC, MITAC, and MITAC America. (Compl. ¶¶ 60-69.) And Bombardier has described in detail how the information in these allegedly stolen documents could assist AeroTEC, MITAC America, and MITAC in certifying its own aircraft. (Id.) In short, Bombardier has sufficiently described its alleged trade secrets for the court to determine if the disputed documents relate to them and should therefore be filed under seal.

(Emphasis added.)  Those who have documents to seal, let them seal, if they can, by following a path like the one that Bombardier has successfully taken in this case.

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

POLICY AND THE FACTS TAKE AWAY "ANTI-CONCURRENT CAUSE" EXCLUSION.

In Citizens Prop. Ins. Corp. v. Salkey, 260 So.3d 371 (Fla. 2d DCA 2018) [PAGE NUMBERS NOT PROVIDED BY WESTLAW AT THE TIME THAT THIS ARTICLE IS POSTED HERE], a homeowners insurance policy imposed an "anti-concurrent cause" exclusion, and then took the ACCC away in an endorsement for sinkhole coverage.  That made the issue of "concurrent cause" ripe for resolution by the jury in the underlying case, a Florida appeals court held:

    Citizens argues that its policy contains language sufficient to avoid application of the concurrent-cause doctrine in two places. First, Citizens argues that the earth movement exclusion contained in the policy explicitly contains anti-concurrent cause language:

1.  We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.

....

b.  Earth Movement and Settlement, meaning:

....

(3) mine subsidence;

....

i.  Loss caused by “sinkhole.”

However, the sinkhole endorsement purchased by the Salkeys expressly provides as follows:

The GENERAL EXCLUSIONS – Earth Movement and Settlement exclusion 1.b. does not apply with respect to coverage provided by this endorsement.

....

The GENERAL EXCLUSIONS – Loss caused by Sinkhole exclusion 1.i. does not apply with respect to coverage provided by this endorsement.

    Accordingly, because the plain language of the sinkhole endorsement explicitly states that the anti-concurrent cause language found in section 1 of the policy does not apply to sinkhole claims, the anti-concurrent cause provision found in section 1 does not apply in the instant case so as to avoid application of the concurrent-cause doctrine.

The jury in that case found that there was at least one concurrent cause, and so it was proper to instruct the jury accordingly, the appellate court held:

    Therefore, applying [Florida law established by the Florida Supreme Court in Sebo v. American Home Assur. Co., 208 So. 3d 694 (Fla. 2016)] to the instant case, we conclude that the trial court properly instructed the jury on the concurrent-cause doctrine, requiring it to determine if at least one of the concurrent causes was covered under the insurance policy.

Nonetheless, because the jury instructions in that case were confusing, the appellate court reversed the trial court's judgment entered on the jury's verdict for the policyholder, and remanded for a new trial.

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GENERICS FORCIBLY REPLACING BRAND PRESCRIPTIONS, LIKE IT OR NOT.

Another agency of the current Federal Government is taking actions to dismantle consumer protections with a new Administrative State.  This time it is the Centers for Medicare and Medicaid Services (CMS), located in the Department of Health and Human Services (HHS).  They propose to substitute generic drugs for brand drugs when consumers fill their doctors' prescriptions.  Their proposal was only posted on January 24, 2019 and, in a relatively short period for Comments, the deadline for leaving a Comment including in opposition to these new-Federal Government proposals, is Tuesday, February 19, 2019.

Here are the complete Comments I left on https://www.regulations.gov on Sunday, February 17, 2019 in opposition to these particular proposals.

February 17, 2019

To:       The Centers for Medicare and Medicaid Services (CMS),

          Department of Health and Human Services (HHS).

          https://www.regulations.gov

 

Re:    Proposed Changes to ACA Benefits and Payments Parameters for 2020.

          CMS-9926-P

To CMS, HHS:

These Comments are regarding your proposed addition to Regulations in 45 CFR, new proposed §§ 147.106(e)(5) and 148.122(g)(5), and wherever else the same proposed changes discussed in these Comments may be found in your proposals.  Your proposed new regulations §§ 147.106(e)(5) and 148.122(g)(5) are published in 84 F.R. at pp. 313-314.

You advise in 84 F.R. at p. 234 that your proposed new § 147.106(e)(5), for example, would allow issuers of drug plans in all three markets -- individual, small group, and large group -- to allow changes to a formulary.  (Although you do not define the term in your proposals, I understand from general usage by CMS/HHS that "formulary" in this context means a list of prescription drugs covered by a plan, a/k/a a drug list.)

The new additions you propose to existing law would be to allow issuers of plans covering prescription drugs to remove the equivalent of brand drugs from the formulary, i.e., from the plan of prescription drugs that are covered by the issuer.  See, e.g., 84 F.R. at 234.

There are at least three obstacles to implementing these proposed new regulations as law.  The three I would like to address in these Comments are (1) that the proposed new regulations are not a reasonable approach to the availability of prescription drugs to consumers who pay for prescription drug plans, or formularies; (2) that the proposed new regulations are a windfall to the issuers of plans covering prescription drugs, at the expense of consumer choice, and (3) that the term, "generic equivalent," is new and undefined, without so much as a reference I can find to the Federal Food and Drug Administration's process of testing and approving generic drugs for use by consumers.

First, the proposed new regulations are not a reasonable approach to the availability of prescription drugs to consumers who pay for prescription drug plans, or formularies.  The goal of adding generic medical equivalents to prescription drug plans, or drug lists, could reasonably be accomplished without mentioning the removal of brand drugs from the formulary at all.

The real effect of proposed new regulations like §§ 147.106(e)(5) and 148.122(g)(5) is not to permit the addition of generic equivalent drugs to an issuer's list of covered drugs, but rather to permit the issuer to remove brand drugs from the issuer's list.

That in itself is an unreasonable change to the law and, moreover, it is not authorized by the enabling Congressional legislation in the first place.  The clear purpose of the enabling statute was to foster consumer choice, not to limit consumer options, especially when it comes to prescription drugs.

That ties in to the second objection addressed in these Comments.  The proposed new regulations, such as for example §§ 147.106(e)(5) and 148.122(g)(5), are an undeserved windfall for the makers of generic drugs, and at the expense of consumer choice.  Lists of covered drugs are of course lists contained in plans for coverage of drugs.  These plans are paid for by consumers in whole or in part including by the payment of deductibles and co-pays, and often paid for as well by a share of the premiums charged for coverage under these plans.  Consumers have paid for the right to have their physicians and medicalcare providers prescribe drugs and to fill these prescriptions with brand drugs at the option or choice of the consumer, and not by the choice either of the pharmaceutical manufacturer or the issuer.  For this reason as well, the proposed new regulations, including §§ 147.106(e)(5) and 148.122(g)(5), should not and cannot be adopted.

The third and final objection to proposed new regulations §§ 147.106(e)(5) and 148.122(g)(5) which will be addressed in these Comments is the undefined use of the phrase, "generic equivalent."  This phrase is found in the proposed new authority to be conferred upon issuers to "add a generic equivalent to a formulary[.]"  See, e.g., proposed new regulation § 147.106(e)(5), 84 F.R. at p. 314, and proposed new regulation § 148.122(g)(5), also in 84 F.R. at p. 314.

The phrase used in this new proposed regulation is not limited to "medically equivalent."  (Emphasis added.)  Nor is it limited by reference, so far as I can find, to FDA-generic-approved medicines.  Without such limitations, the proposed new authority to replace brand drugs on drug lists with "a generic equivalent" is overly broad and so it is meaningless.  It would, for example, allow issuers and generic drug manufacturers to buy their way onto drug lists to add drugs that their own proprietary  'research' and support has 'determined' to be "a generic equivalent," without limitation to generic medicines already approved by the FDA.   For this reason as well, the proposed new regulations, including §§ 147.106(e)(5) and 148.122(g)(5), provide no limiting guidelines and so are void and of no effect.  They cannot validly be promulgated.

For each and all of these reasons, whether taken separately or together, the proposed new regulations, including §§ 147.106(e)(5) and 148.122(g)(5), cannot validly be promulgated as administrative regulations and, moreover, they are void and of no effect as new law.

Sincerely,

Dennis J. Wall

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INSURANCE BAD FAITH STATUTES:

ARE UNFAIR AND DECEPTIVE ACTS AND PRACTICES ENOUGH ANY MORE?

Did you ever wonder what will become of Insurance Bad Faith Statutes if people asserting claims under those statutes would be required to plead and prove "actual injury" because of the alleged statutory violations?

That's one lawyer's way of asking whether there is anything left of Insurance Bad Faith Statutes in an age that requires a judge to agree that there is "actual injury" in every claim.

I have wondered about this, and I wrote about it in a new Section of my 2018 Supplements, Section 3:28.50, titled "Injury in Fact":  What Happens to Bad Faith Statutes? 2018 Supplement, Volume 1, of Litigation and Prevention of Insurer Bad Faith (Thomson Reuters Third Edition).

I am making it available to you on my website for you to reprint, at no cost to you, with the permission of the publisher.  Republished there with the permission of the author and Thomson Reuters.  No further republication or reproduction of this material may be made without the express written permission of the publisher.

Enjoy the research and expand on it!  Let me know what you find, if you can.  I am going to expand on the research on this subject myself in my 2019 Supplements! 

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