Claims and Bad Faith Law Blog

FOR GOODNESS SAKE, GET A RELEASE!

For goodness sake, if you did not already know that it is a good and necessary thing for your clients, get a release!  Here's why, reprinted with permission from the 2018 Supplements to Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith (3d edition, Thomson Reuters):

The following article is reprinted from Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith, Third Edition (Thomson Reuters). Further reproduction of this article without the express consent of the publisher is prohibited.

§ 5:58. Release

 Many cases of alleged Third-Party Insurer Bad Faith involve previous settlement arrangements and Releases with varying effects between liability insurance companies and their policyholders. These situations often arise, for example, in cases involving Director's and Officer's Coverage Claims.

Whenever a Release was previously given by the policyholder or other insured to the insurance company, which arguably bars recovery from the insurance company based upon the same conduct now alleged in a later case, it should of course be raised as a defense in the later Bad Faith case.¹

Westlaw. © 2018 Thomson Reuters. No Claim to Orig. U.S. Govt. Works.

Footnotes

1

National Heritage Found., Inc. v. Philadelphia Indem. Ins. Co., 2012 WL 5331570 *5–*7 (E.D. Va. October 25, 2012) (previous Settlement Agreement with Release barred policyholder's recovery of defense costs from D&O insurer incurred by policyholder in litigation against policyholder, but did not bar recovery of settlement amounts paid by policyholder to settle litigation against it).

And here is the pdf:  Download 5_58 PDF REC'D FROM TRW 08.22.18..

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"INJURY IN FACT": WHAT HAPPENS TO BAD FAITH STATUTES?

New Section 9:14.50 contains only a part of the new material in the combined 661 pages of text excluding Tables in the 2018 Supplements to Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Third Edition Thomson Reuters), in addition to sections of new material including on Force-Placed Insurance, Defenses in Force-Placed Insurance cases including the Filed Rate Doctrine, the Status of Social Security, and Settlement of First Party Bad Faith Claims including secrecy agreements and sealing orders, among others.

Section 9:14.50 is titled, "'Injury in Fact':  What Happens to Bad Faith Statutes" when courts require allegations and proof of what they call "injury in fact" in the litigation of bad-faith claims?

I want to give you a link to the new Section but the publisher will not let me right now.  I will ask for Thomson Reuter's copyright permission and if they agree, I will provide you the link in a following post here and on Claims and Issues Blog!

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

TOO SCARED TO TRY: FEDS BEG WALL STREET TO SETTLE …

…All the Big Cases.

This article is being posted simultaneously on Insurance Claims Bad Faith Law Blog and on Insurance Claims and Issues Blog.

HSBC was accused by the Federal Government of what amounts to laundering money for terrorists.  The Feds settled the HSBC matter although they had good chances of success if they went to trial against HSBC and especially against many of its officers and employees.  What trial lawyer would not want to have the prosecution side of a case against terrorists and their sympathizers?  Apparently the Feds.  See Gretchen Morgenson in her "Fair Game" column published in this morning's Sunday New York Times, "A Bank Too Big to Jail" (posted Online on July 15, 2016), which you can also post in your browser at http://www.nytimes.com/2016/07/17/business/a-bank-too-big-to-jail.html?ref=business&_r=0.  Ms. Morgenson's column features an unofficial report released by Republican staffers of the U.S. House Financial Services Committee without the Committee's approval.  Although obviously partisan, it appears that this investigative report offers a lot of actual evidence and not just opinions.

For example, after the Feds decided not to take the HSBC case to trial, they wanted so much to settle with HSBC that they offered immunity from prosecution to HSBC's officers and employees if only HSBC would settle.  The HSBC settlement apparently offers a lesson in settling on unfavorable terms.  Anyone who has ever settled a case knows that once the other side of a negotiation knows that your side wants to settle badly, that is exactly how your side will almost certainly end up settling, which is badly.

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

FURTHER RE: WHEN IS ISSUE "ACTUALLY LITIGATED" EARLIER, PRECLUDED LATER?

Image provided by NASA.

This expands a previous article titled "WHEN IS AN ISSUE 'ACTUALLY LITIGATED' EARLIER AND PRECLUDED LATER?"  The earlier article was actually litigated on Insurance Claims and Issues Blog, you might say.

However, this further issue was not actually litigated in the earlier article.  It is this settled rule of law:  "The party asserting preclusion bears the burden to prove all the necessary elements."  Continental Western Insurance Co. v. Federal Housing Finance Agency, ___ F. Supp. 3d ___, 2015 WL 428342, *4 (S.D. Iowa Feb. 3, 2015).

Therefore this is an open issue here, and it updates and enhances the article posted here on September 1, 2015 titled, "A LITTLE EXCESSIVE SETTLEMENT JURISDICTION NEVER HURT ANYBODY?"

It was pointed out in the "Excessive Settlement Jurisdiction" article that parties ordinarily submit settlement stipulations, and courts enter orders approving them, which contain provisions that plaintiffs will be enjoined from having anything to do with other litigation involving the "Released Claims" in that case.  This is one of the questions resulting from those provisions, and it was asked in the article:

And why is the defendant in that other case seemingly freed from the burden of pleading and proving its own affirmative defense of issue or claim preclusion, or of res judicata?

Especially when the party asserting preclusion bears the burden to prove all the necessary elements?  What reason is there to deliberately enter an order contrary to settled law, simply because the parties "stipulated" what they say shall be the law? 

And last but not at all least:  If unexamined stipulations drive adjudications, what drives employment for judges?

Please Read The Disclaimer.  Copyright 2015 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015). Listen to the author's most recent Thomson Reuters Legal Current podcast.  All Rights Reserved.  No Claim to Original U.S. Government Works.

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WHEN IS AN ISSUE "ACTUALLY LITIGATED" EARLIER AND PRECLUDED LATER?

A LITTLE EXCESSIVE SETTLEMENT JURISDICTION NEVER HURT ANYBODY?

DEPOSING LAWYERS IN AN INSURANCE CASE: THE STORY STILL UNTOLD.

    Part of this story has already been told.  See Insurance Claims and Issues, October 6, 2014.  What follows is told here for the first time.

    This is a story of deposing two lawyers and how a Court chose between them.  Oh, there are allegations and mysterious overtones of bad faith and skulduggery.  The lawyers themselves were accused by Bank of America of perpetuating a bad faith scheme by "requiring" the bank "to sign a 'factually incorrect release ('Release')," among other things.  Bank of America, N.A. v. Georgia Farm Bureau Mut. Ins. Co., 2014 WL 4851853 *1 (M.D. Ga. September 29, 2014.)

    That is why the bank wanted to depose these two lawyers.  The decision over which one or both or neither of these lawyers could be deposed presented "a discovery dispute surrounding BANA's [Bank of America's] claim of bad faith and Mr. Dietrichs' and Ms. Murtha's alleged involvement surrounding the disputed Release."   Bank of America, N.A. v. Georgia Farm Bureau Mut. Ins. Co., 2014 WL 4851853 *1 (M.D. Ga. September 29, 2014.)

    But let's return to the real story here.  This was a case of choosing between two lawyers, one or both or neither of whom would be picked for giving a deposition.

    One of the two lawyers is a woman, admitted to practice in 2008, and no longer employed at the law firm which represented the insurance company in obtaining the apparently offending release and which represents the insurance company in Bank of America's bad faith lawsuit.

    The other lawyer is a man, admitted to practice in Georgia in 1981, and a member of the large Atlanta law firm representing the insurance company at all material times.

    The Georgia Judge ruled that only one of these two lawyers could be deposed and deposing the former associate who is no longer involved in the case would cause the least prejudice to the insurance company, so the Court in this case chose her to be deposed.  "Ms. Murtha's deposition must be held in the Middle District Courthouse in Macon, GA."      Bank of America, N.A. v. Georgia Farm Bureau Mut. Ins. Co., 2014 WL 4851853 *6 (M.D. Ga. September 29, 2014.)

    It is respectfully submitted that this ruling leaves a couple of questions unanswered and perhaps unasked.  Let's ask them now.  Rule 26(c) authorizes, perhaps requires, Federal District Judges "to protect a party or person from annoyance, embarassment, oppression, or undue burden or expense".  The judicial inquiry into annoyance, etc., in this case properly focused on the insurance company to the extent that the Court ruled that the least prejudice to the insurance company in allowing either of these depositions to be taken would be if only one deposition is allowed and that deposition can be of the former associate who no longer represents the insurance company in this case.  So far, so good.

    However, there does not appear to be the same level of concern over the prejudice to the former associate. To be accurate, the opinion does not display any level of concern over the possibilities of annoyance, embarassment, oppression, or undue burden or expense from her standpoint.  Perhaps the Court was concerned with these factors yet did not display them in its opinion, but regardless, the parties and the world -- readers like you and me -- would benefit from knowing what weight if any these factors played in this ruling.

    Before concluding these thoughts, the part of the story involving Macon, Georgia is particularly interesting.  According to a Google Search, Macon is some 85 miles from Atlanta.  I also did a Google Search for the former associate but could not find a location for her other than Atlanta in a brief search.  Assuming that the witness -- the former associate lawyer who does not represent the insurance company in the lawsuit -- resides in Atlanta, what basis was there for ordering her to appear for a deposition 85 miles away in Macon?

    Like I said earlier, there are unanswered questions here.  These have been some of them.

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

    

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NEW RULE! THE CASE OF "THE OVERREACHING RELEASE".

         In Government Emp's Ins. Co. v. Prushansky, 2014 WL 47734 (S.D. Fla. January 7, 2014), a Federal District Judge found a new rule in Florida jurisprudence.  The Federal Judge denied a liability insurance company's motion for summary judgment in a bad-faith-failure-to-settle case in part because there is inherently a fact question "where an overreaching release is proposed".

          In the Prushansky case, the overreaching-release-fact-question came about when counsel for the underlying claimant testified that the underlying defense counsel representing the defendants-insureds told him, the counsel for the underlying claimant, that the insurance company refused to delete indemnity language in a proposed release.   Government Emp's Ins. Co. v. Prushansky, 2014 WL 47734 *10 (S.D. Fla. January 7, 2014)   (citing two Florida cases linked in the opinion available on Westlaw).

          The counsel for the claimants testified that he filed the underlying lawsuit in the first place because the carrier failed to remove indemnity language from its proposed release "and offer more than" the policy limit.  Government Emp's Ins. Co. v. Prushansky, 2014 WL 47734 *6 (S.D. Fla. January 7, 2014).

          Later, after the underlying lawsuit was filed, the claimants' counsel rejected the liability insurance company's tender of its policy limits accompanied by a release with the indemnity language intact.  Government Emp's Ins. Co. v. Prushansky, 2014 WL 47734 *7 (S.D. Fla. January 7, 2014).

          A new rule emerges like an island in the ocean of bad-faith-failure-to-settle cases.  Who knew a rule was even there, or about to arise?  Or that heaven forbid we need a new "rule" when in Florida such a case as was presented here would likely go to the Jury anyway?

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

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Good Faith in Obtaining a Release.

          There is a covenant of good faith and fair dealing which is implied in all contracts, and there are also covenants of good faith and fair dealing implied in property and casualty insurance contracts.  These different implied covenants hardly ever carry with them identical requirements of good faith and fair dealing among the different kinds of contracts in which they are implied.

          Covenants of good faith and fair dealing that are implied in releases of claims, however, may overlap with one or another type of implied covenant -- particularly when the releases are obtained by a property insurance company or a casualty insurance company.  For a good discussion of the issues, see this newly published law review article by Jay M. Feinman, "Enforceability of Releases in Property Insurance Claims," 19 Conn.  Ins. L.J. 251, 257-58 (examining role of good faith denial of liability by life insurance company when obtaining release in exchange for payment of less than the value of the policy), 260-63 (examining roles of "opportunistic behavior" and expectations of the insured when insurance companies obtain releases from their own insureds) (2012-2013).

Please Read The Disclaimer.  Copyright © 2013 Dennis J. Wall.  No claim to original works by Jay M. Friedman, Esquire or original Connecticut Insurance Law Journal works.

EVERYTHING YOU WANTED TO KNOW ABOUT ENFORCING A Coblentz AGREEMENT.

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

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

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

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

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

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

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

MISCONDUCT INDUCING FHA INSURED MORTGAGES: LITIGATION ALLOWED DESPITE SETTLEMENT AGREEMENT.

          The purpose of a Settlement Agreement almost always includes obtaining a Release of all claims based upon the same conduct, whether or not the claims were actually made.  Sometimes, even when the party receiving the Release pays lawyers handsomely to craft the Release, a Court comes along and ruins it with a holding that the previous Release does not bar the present lawsuit.

          Such is the holding in a case in which the United States, joined by State Attorneys General, sued over alleged misconduct which induced the Federal Housing Administration (FHA) to insure Mortgage loans arranged by Bank of America and Wells Fargo and other high-rent-district Defendants.

          The procedural basis for this ruling was Wells Fargo's Motion to Enforce a previous Consent Judgment (i.e., to enforce a settlement with a Release in it), which was drafted on behalf of some or all of the same Defendants.

          Wells Fargo argued that the Release barred all litigation based on the same "underlying conduct"; the Court was of the opinion, after reading the Release, that it released only the specific  "claims" which were chosen for identification in the Release.

          To quote the words written by the Court to announce its holding in this regard:

In Paragraph 3(b) [of the Release drafted on behalf of the Defendants], the United States releases Wells Fargo from claims based on the annual certification. See Release ¶ 3(b) at F–16–F–17 (“[T]he United States fully and finally releases [Wells Fargo] from any civil or administrative claims it has or may have .... under FIRREA [and] the False Claims Act where the sole basis for such claim or claims is that [Wells Fargo] submitted to HUD–FHA ... a false or fraudulent annual certification that the mortgagee had “conform[ed] to all HUD–FHA regulations necessary to maintain its HUD–FHA approval ...”). Paragraph 3(b) specifically states that claims based on fraudulent annual certifications are released; it does not state that claims based on “Covered Origination Conduct” or any other underlying conduct are released. Paragraph 3(b) does not mention the conduct underlying annual certifications. Presumably, a false annual certification could jeopardize each application for FHA insurance during that year and potentially expose Wells Fargo to hundreds, if not thousands of claims under the FCA and other statutes.

United States v. Bank of Am., 2013 WL 504156 *6 (D.D.C. February 12, 2013).  [Emphasis by the Court.] 

          To say again, the purpose of a Settlement Agreement almost always includes obtaining a Release of all claims which were made, or which could have been made, based upon the same conduct.  Sometimes, even when the party receiving the Release pays lawyers handsomely to craft the Release, a Court comes along and ruins it with a holding that the previous Release was not written in such a way as to bar the present lawsuit.  It appears that these troubles from time to time bedevil other parties besides Insurance Companies settling lawsuits for their Policyholders or for themselves.

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Force Placed Insurance and the Duty of Good Faith.

INADEQUATE DEFENSE OF INSURED CLAIMED BAD FAITH: TAKEOVER NOT JUSTIFIED.

            A U.S. Magistrate Judge confronted several "hot topic" issues of Bad Faith in the Third-Party Bad Faith case of Doe v. Onebeacon America Insurance Co., 2012 WL 5876566 (N.D. Fla. November 21, 2012)(Jones, USMJ).  The background of the case is significant.

            The Court faced competing Motions for a Protective Order, and to Compel, in a discovery dispute in a Third-Party Bad Faith case.  One of the Defendants in the underlying liability case was the Diocese of Savannah.  The Liability Insurance Carrier defended the Diocese under a Reservation of Rights.  However, apparently without communicating the fact beforehand to its Liability Insurance Carrier, the Diocese settled with the Injured Claimant (referred to in the style of the Bad Faith case and in the opinion as, "Doe"), without the Carrier's consent.  The Diocese also gave the Injured Claimant an assignment of certain rights.  Exactly which rights were assigned was unclear to the Court, but the assignment certainly included the Bad Faith rights of the Diocese against the Liability Carrier.    Doe v. Onebeacon America Insurance Co., 2012 WL 5876566 *1  (N.D. Fla. November 21, 2012).

            The biggest "hot topic" issue addressed by the Magistrate Judge concerned the Plaintiff Doe's argument that "Defendant's failure to provide an adequate defense justified the insured acting independently to settle the case."  Doe v. Onebeacon America Insurance Co., 2012 WL 5876566 *1 (N.D. Fla. November 21, 2012)(Jones, USMJ).  This is a "hot topic" issue in the case law.   See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:50 ("Settlement by or Judgment Against Insured") (Third Edition West Publishing Co., 2012 Supplement).

        Under Florida law, the Court disagreed with the contention that an Insured can accept a defense under a Reservation of Rights and then settle without the consent of the  Liability Insurance Carrier and without any material change in the terms under which the Carrier provided the defense.  The Court acknowledged that Florida law does not permit the Insured to reject a defense which it has already accepted under a Reservation of Rights, simply because the defense is inadequately conducted:

    If the insured, as here, does accept a defense under a reservation of rights, the insured must cooperate with the insurer throughout the course of the litigation. The insurer may not take advantage of the insurer-provided defense, then later reject that defense and attempt to control the litigation itself. This is so even if the defense provided by the insurer is less than adequate.  [Citations omitted.]    The only narrow exception to this principle is where the insurer has provided a defense which the insured accepts, but the insurer then changes the terms of the defense in a material way. In that instance, the insured may then be justified in rejecting the defense.

Doe v. Onebeacon America Insurance Co., 2012 WL 5876566 *5 (N.D. Fla. November 21, 2012).  The Plaintiff in this case did not claim that there was any material change in the terms of the defense which the Diocese accepted in the underlying case.  Accordingly, the Magistrate Judge denied discovery from and after the time that the Diocese rejected the defense, apparently by entering into the settlement and assignment, "even with regard to the issue of coverage."  Doe v. Onebeacon America Insurance Co., 2012 WL 5876566 *6 (N.D. Fla. November 21, 2012)(Jones, USMJ).  The moral:  In Florida and in other jurisdictions following the Florida view, the consequences of an Insured first accepting a defense under a Reservation of Rights and then being provided an allegedly inadequate defense, may go beyond even the entry of an Excess Judgment against the Insured.

            On another "hot topic" issue, the Court noted that the Defendant alleged Affirmative Defenses in this case, which is of course to be expected in any case.  In this case, the Plaintiff propounded a Request for Production directed to documents containing any supporting fact information for any of the Affirmative Defenses alleged by the Defendant in this case:

All documents, whether in paper form, computer data format or any other medium, which relate in any way to the facts that form the basis for the affirmative defenses in the Defendant's Answer.

The Defendant Liability Carrier in this case seems to have objected only on the ground that this Request is "overbroad."  The Court overruled this objection and granted Plaintiff's Motion to Compel as to this Request for Production, holding that "Defendant may not assert an affirmative defense and then decline to produce documents that would support those defenses.  The Court finds that all documents that will support a factual basis for any affirmative defense must be produced."   Doe v. Onebeacon America Insurance Co., 2012 WL 5876566 *7 (N.D. Fla. November 21, 2012).  [Emphasis added.]   The moral:  Defendants don't let your words grow up to be Affirmative Defenses unless you are prepared to provide fact discovery about them.

            In two further rulings, the Court in this case also equated the personal attorney of the Insured with the retained defense counsel in terms of the Carrier's standing to legitimately assert the Attorney-Client Privilege against discovery from the Insured's personal lawyer, where among other things the Insured's personal attorney was also paid by the Liability Carrier to defend the underlying case.   Doe v. Onebeacon America Insurance Co., 2012 WL 5876566 *3 (N.D. Fla. November 21, 2012)(Jones, USMJ).

            In addition, the Magistrate Judge's opinion seemed to equate discovery into Insurance Coverage issues with discovery in First-Party Bad Faith cases, see Doe v. Onebeacon America Insurance Co., 2012 WL 5876566 *4 (N.D. Fla. November 21, 2012)(Jones, USMJ), although this analogy does not seem to have been necessary to the Court's ruling that discovery into "communications between counsel and the insurer" was premature at this stage of the litigation.

The American Conference Institute's 23rd National Advanced Forum on Bad Faith Litigation begins with a workshop today, Tuesday, November 27, 2012 at the Hyatt Regency Grand Cypress Hotel at Disney World in Orlando, Florida, and continues over the next two days.  I will be speaking on both of the following days.  On Wednesday, November 28, 2012 I will be part of a panel addressing the handling and litigation of a typical Bad Faith Claim.  I will address in particular the permissible proffers and uses of Expert Witnesses before and at Trial of the Bad Faith Case.  On Thursday, November 29, 2012 I will be a co-presenter of an afternoon-long Florida Workshop.  Please plan on attending.  I would prefer to present these issues with you in the audience!

Please Read The Disclaimer.   

AFTER THE SETTLEMENT ...

   ... They Wrote the Complaint.

    Settlement between five Mortgage Servicers/Banks, on the one hand, and the United States, and all but one of the Attorneys General of the States and the District of Columbia on the other hand, was announced in early February, 2012.  They settled unalleged differences over unknown things.

    Their Settlement Agreement was not made available until it was posted this past week online, at www.nationalmortgagesettlement.com.  

    The only people who could look at it in the meantime, are the ones who wrote it.  See February 26, 2012 post here:  "Is There a Mortgage Foreclosure Fraud Settlement? 

    In an unusual development, the Complaint was not written until after the settlement was announced.  Also this past week, a Complaint was posted for the first time.

    It is not dated.  A date would, well, date it.

    It does not show a Case Number, nor does it bear any Clerk's "Filed" stamp.  Presumably, it looks the same as the original filed in Court.

    Without a case number, the parties listed in the style are too generic to yield any PACER search results.  PACER is of course the online electronic docket of the Federal Courts.  I have tried PACER searches for the lawsuit, without success, yet.  I plan to continue.  If you want to try a search yourself, on PACER or otherwise, the parties' names on the Complaint are United States of America, et al. v. Bank of America Corporation, et al. 

    Here is a copy of the only Complaint made available in the interim from the www.nationalmortgagesettlement.com website:  Download Undated, Unfiled Complaint.  It is 99 pages long.  I have not finished reading it, at this time.  I plan to comment further regarding it, in a later post.

    There are as many Settlement Agreements posted on the website as there are Mortgage Servicers:  Five.  A look at the Settlement Agreement reached with the first-named "Defendant" in the Complaint, Bank of America Corporation, shows that it is a potentially intimidating 317  pages long.

    To summarize where we are to this point:  There was a settlement, after which a 99-page complaint was written, and thousands of pages of settlement documents were also written, and all of which reading material was released for public review a month after the press notices were released announcing a settlement of unknown, unidentified allegations.

    And now, a Federal Judge is going to be asked to approve it all.  Judge, correct me if I am wrong, but this smells.  Perhaps it is just the way it was cooked.

    The prevailing applicable rule of law followed by Federal Judges in reviewing actions of administrative agencies, is one of "deference".  In the 21st Century, this standard of review rule or at least the way it is being argued in recent similar cases, has frankly outlived any basis in reality it once had.  The Governments' argument is essentially that Federal Judges are duty-bound to rubber stamp whatever settlements the Governments make.

    That is the binding rule of law at this time, at least according to one Second Circuit panel.  See Edward Wyatt, "Ruling Gives Edge to U.S. in its Appeal of Citi Case" p. B1, col. 6 (New York Times Nat'l Ed., "Business Day" Section, Friday, March 16, 2012).

    Perhaps there will be one United States District Judge honest enough to say that the evidence submitted in support of the bare allegations in the "Complaint" is not enough, but prevailing law requires approval of this settlement anyway simply because an administrative agency of the Federal Government made it.

Please Read The Disclaimer. 

    

 

    

A Release is Not Necessarily a Release of ALL Claims.

   Lee S. Haramis, Sr., sued Allstate's Insured in Florida State Court.  Allstate settled that lawsuit.  Mr. Haramis executed "a Complete Release of All Claims and Agreement to Hold Harmless and Indemnify".  The only insurance policy limits referenced in that Release, according to a highly respected Federal Judge now on senior status, were policy limits for Bodily Injury and Property Damage Liability Coverages.  See Haramis v. Allstate Property & Casualty Insurance Co., 2011 WL 5510730 *1-*2 (M.D. Fla. November 10, 2011), Download Haramis v. Allstate Property and Casualty Insurance Co. (M.D. Fla. Case No. 3.11cv455, Order Filed Nov. 10, 2011) PUBLIC ACCESS.

   Mr. Haramis then sued Allstate as personal representative of his daughter's Estate, seeking Uninsured Motorist benefits.  Allstate defended itself by raising the Release in the earlier lawsuit.

   The Federal Judge held that the earlier Release did not entitle Allstate to Summary Judgment in the U.M. lawsuit.  Instead, the Release is "ambiguous," the Court held, denying Allstate's Motion for Summary Judgment.  In pertinent part, although the Release of the first lawsuit recited on its face that it was for policy limits, "[t]he Court notes that the only policy limits referenced in the Release are those for bodily injury coverage and property damage liability coverage.  The release is silent as to uninsured motorist coverage limits."  Id. at *3.  [Emphasis added.]

   Parenthetically, the Release in the first lawsuit was drafted to include an express Release "'from any claims whatsoever arising from allegations of bad faith dealing, breach of insurance contract, negligent claims adjustment or otherwise actionable conduct by [Defendant] in its claims defense activities ....'"  In addition, although the Court did not dwell on the fact, the earlier Release expressly applied to certain claims and not others.  It reached claims "'of any kind or nature (other than claims for first-party insurance, medical, or governmental benefits from other entities not named herein)....'"  Id. at *2.

 The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida on November 30 and December 1, 2011.  The author will be speaking on two panels.  Here is a link to the American Conference Institute Website Page which features this Conference including registration. If you or someone you know would like to attend, the ACI is offering a discount to the readers of this weblog.  If you would like to explore the ACI discount offer, contact:

Priority Code:  TM-MGN

Marc Gerstein
Delegate Coordinator
Office: 1-212-352-3220  x5432

[email protected]

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UPDATE to "Who Fleeced the Fiduciaries"?

This is an update to two posts, both on July 6, 2010:  One on Insurance Claims and Issues Web Log, and one on Insurance Claims and Bad Faith Law Blog.

   The Government Accountability Office reports that the New York Fed has some 'splainin' to do.  See Binyamin Appelbaum, "Report Says New York Fed Failed to Cut A.I.G. Deals" p. B1, col. 4 (New York Times Nat'l ed., "Business Day" Section, Tuesday, November 1, 2011), differently written in the print edition vs. the version found online at www.nytimes.com.

   Among other things, the GAO reports that the New York Fed has been inconsistent in its explanations about how and why it came to be that Federal Taxpayer Funds were used to pay AIG's 'counterparties' 100 cents on the dollar of each and every one of their Credit Default Swap claims against AIG -- even at least one counterparty which told the New York Fed that it would take less.

   Apparently, the New York Fed refused to be negotiated down.

   The GAO report does not address the mystery of how a complete Release of All Claims by AIG -- even claims not yet made by AIG -- came to pass in favor of all of AIG's counterparties.   At least, the linked newspaper article does not mention the mystery.  The posts of July 6, 2010 mention this mystery.

   There is still no answer to the mystery.

   One mystery has been solved, however.  (Well, "mystery" may be too strong a word; it is something that at least is not talked about very often.)  That is:

  Who was in charge of the Federal Reserve Bank of New York when the New York Fed decided to use Federal Taxpayer Money to pay AIG's counterparties 100% of the counterparties' claims against AIG?

   He later became Secretary of the Treasury under Mr. Obama.  His name, of course, is Timothy Geithner.  See id.

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"The Banks Still Want a Waiver" ... No, They Also Want Immunity: ...

This is an update to numerous posts in this space, most recently on July 19, 2011 entitled, "Prayers Over Bondi, Mortgage Finance "Unfair, Deceptive and Unconscionable" Actions

... Foreclosure Fraud by Foreclosure Plaintiffs, Continued.

   "MERS" stands for "Mortgage Electronic Registry Systems".  This company has nothing to do with the Clerks of Court in the States.  It is a corporation made by Banks and other Lenders to save them the time and expense not only of recording all the Mortgages they take back to secure their Loans in the first place, but also to file Foreclosure Lawsuits against defaulting Homeowners-Mortgagors.  Unfortunately, MERS did not make the loans and, in addition, MERS does not have the original note or a lawful excuse why not, in many cases.

   There is a split among the Courts over whether MERS has standing to sue for Foreclosure under these circumstances.  The percentage breakdown among the Courts is unclear.  The judicial view that MERS has no standing to sue in such Foreclosure Cases is well-articulated by Federal Judge Robert E. Grossman, quoted by Gretchen Morgenson, "Fair Game / The Banks Still Want A Waiver" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, July 24, 2011):

This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.

   The contrary view is expressed, for example, in a case involving the substantive law of Arizona, which is a Nonjudicial Foreclosure State meaning that the only involvement Courts in Arizona have with Foreclosures is when someone files a lawsuit to halt or to enforce one.  See, e.g., Download Schayes v. BAC Home Loans Servicing, LLP (D. Ariz. Case Nos. CV.10.1893, CV.11.1074, Order Filed July 15, 2011) PUBLIC ACCESS also published as 2011 WL 2746322 *2 (D. Ariz. July 15, 2011)(only Defendant was "the current servicer" of a residential loan secured by a deed of trust; holding in case at bar in pertinent part both that the Plaintiffs had not adequately pled sufficient facts in their Complaint to withstand dismissal of their Claims, and had stated legally insufficient Claims, that the mortgage servicer "is incapable of foreclosing absent actual possession of the note," that the trust deed is invalid, or that the mortgage servicer lacks standing "to conduct a non-judicial foreclosure.")(authorized password required to access Westlaw).

   Banks that own MERS are seeking releases of liability against claims that have not been made yet, it is reported by Gretchen Morgenson, "The Banks Still Want A Waiver," supra.  The Banks are making this demand in their current negotiations with the 50 State Attorneys General.  "Lawyers who have examined this issue say it would be unprecedented to grant a broad release from liability ... from claims that have not been investigated."  Id.

   Demanding a release from Unknown Claims is not exactly unprecedented on Wall Street, however.  The U.S. Government, specifically the Federal Reserve Bank of New York and the Treasury Department, forced AIG to release in advance what a release demanded by AIG's counterparties on Credit Default Swaps specifically labeled as "Unknown Claims".  See "AIG's Secret 'Unknown Claims' Release Worthless Paper?" posted here on July 6, 2010; and see "Who Fleeced the Fiduciaries?  AIG's 'Unknown Claims' Release ... Could Be Worthless Paper" posted on Insurance Claims and Issues Blawg, also on July 6, 2010

   The story about the hidden release of AIG's "Unknown Claims" was broken by New York Times Reporters Louise Story and Gretchen Morgenson.  One of the few good things in this situation is that the newspaper and these fine reporters are still focused on this very important and unfortunately recurring story.

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No "Tender," Still -- No Bad Faith.

   "Tender" of money involves a complete parting with the right to spend it, in basic terms.  Thus, when a settlement demand (or offer) requires a "tender" of Policy Limits, for example, it is generally understood that an offer in response to pay the Policy Limits is not necessarily Good Faith because it is not technically a "tender" of the Policy Limits.

   In Boateng v. GEICO General Insurance Co., Download Boateng v. GEICO General Insurance Co. (S.D. Fla. Case No. 10.CIV.60147, Order Filed November 22, 2010) PUBLIC ACCESS, also published as 2010 WL 4822601 (S.D. Fla. November 22, 2010)(authorized Westlaw password required to access Westlaw), there was no "tender" of the full Policy Limits (one for one injured Claimant and another for one Wrongful Death) but still there was NO Third Party Bad Faith in a Failure to Settle Case.

   It is crucial to the outcome in this case that GEICO offered to pay Plaintiff the policy limits within a short time after the accident, even though, argued the Plaintiff's Attorney, "GEICO never tendered the policy limits."  Boateng v. GEICO General Insurance Co., 2010 WL 4822601 at *1.  "Here, GEICO did contact Plaintiff shortly after the accident to begin the process of settling Plaintiff's claim."  Id. at *5 n.3.

   GEICO's activities following the accident are detailed in id.  at *3-*5.  On this record, the Federal Court was of the view that "GEICO initiated settlement negotiations with Plaintiff and Plaintiff did not respond.  Instead, Plaintiff retained an attorney whose first move was to file a bad faith claim against GEICO."  Id. at *5.

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Class Action Settlement Binds Plaintiff Doctors: Released Claims Not Relitigated.

 

   A settlement binds the Plaintiffs as much as it binds the Defendants.  That includes a settlement and Release in a Class Action filed by Doctors against Health Insurance Companies.  One of the Plaintiff Doctors was not done filing lawsuits.  He filed similar Claims including regarding Claims Handling and alleged Bad Faith in the New York State Supreme Court.  The United States District Court for the Southern District of Florida held in that case that the Plaintiff was bound by his Class Action Settlement and Release.

 

As the United States Magistrate Judge found:

 

Now turning to the specific allegations asserted by Plaintiff under each count, it is clear that Counts II-IV and VI-X all pertain to Empire's allegedly improper claims handling:

   • Count II (Declaratory Judgment)-Arising out of Empire's alleged failure to reimburse Plaintiffs “per a consistent fee-for-service formula for services rendered to patients subscribed to Empire.” Id. ¶ 57.

• Count III (Declaratory Judgment)-Requiring that Empire “disclose the formula, scheme or payment allowance guidelines for each subscriber's policy and procedure code, such that Empire must explicitly reveal and clear: a) the CPA code used for each subscriber; b) the explicit basis for allowance; c) the explicit basis for rejecting procedures; and d) the explicit basis for rejecting reimbursements.” Id. ¶ 63.

 

• Count IV (Unjust Enrichment)-Arising out of Empire's improper underpayment for professional services rendered to its subscribers. Id. ¶ 68.

 

• Count VI (Fraud)-Arising out of Empire's alleged “repeated false statements in its explanations of benefit sent to Dr. Artandi as justifications for payments made” to him. Id. ¶ 74. The FAAC further alleges that “Empire has intentionally and repeatedly made false and dishonest calculations in justifying its reimbursement amounts to Dr. Artandi.” Id. ¶ 75.

 

• Count VII-VIII (Monetary and Punitive Damages)-As previously stated, these counts do not recite cognizable causes of action. Instead, they merely recite the types of legal remedies that Plaintiff is seeking as a result of Empire's alleged “long pattern of intentional, bad-faith, oppressive, malicious and outrageous misconduct in failing to pay and underpaying Dr. Artandi for services rendered to patients subscribed to Empire, according to an erratic, inconsistent and arbitrary scheme.” Id. ¶ 84.

 

*6 • Count IX (Unfair and Deceptive Business Practices Under N.Y. Gen. Bus. L. § 349)-Arising out of Empire's alleged “false, misleading and deceptive statements of fact” intended to mislead a reasonable consumer. Id. ¶¶ 88-90.

 

• Count X (Breach of Contract)-Arising out of Empire's alleged failure “to reimburse Dr. Artandi as a non-participating physician for medically necessary services rendered, in a fair, reasonable, statutorily timely, consistent and legally acceptable manner, based on a fee-for-service formula calculated under the UCR, RC or prevailing fee standard.” Id. ¶ 97.

 

Clearly, a careful analysis of the allegations raised in the FAAC suggests that Counts II-IV and VI-X clearly fall under the scope of Released Claims under the Final Approval Order because they all relate to the denial, delay, and diminishment of physicians' fee for service claims. In other words, “but for” Empire's alleged improper claims processing schemes, Counts II-IV and VI-X would simply not survive on their own. Allowing these claims to go forward will require litigating the merits of the alleged improper claims handling practices, clearly an issue addressed and settled by the Final Approval Order. Indeed, the Eleventh Circuit has recently emphasized the broad language of the Love Settlement and instructed us that the release “extends to any and all causes of action of whatever kind, source, or character that are related to matters addressed in the class action.” Thomas v. Blue Cross and Blue Shield Ass'n, 594 F.3d 814, 822 (11th Cir.2010) (finding Plaintiff Kolbusz's claims of tortious interference and defamation released under the Love Settlement regardless of the fact that these claims might “depend on a different legal theory than the claims asserted in the class action or require [plaintiff] to prove matters in addition to or different from the claims asserted in the class action”). Thus, Claims II-IV and VI-X are Released Claims and Plaintiff should be enjoined from pursuing them in the New York Supreme Court.

 

 Love v. Blue Cross & Blue Shield Ass'n, Download Love v. Blue Cross and Blue Shield Assn (S.D. Fla. Case No. 03.21296.CIV, May 24, 2010 Report and Recco of USMJ Torres) PUBLIC ACCESS, also published as 2010 WL 3781602 *5-*6  (S.D. Fla. May 24, 2010)(Report and Recommendation of U.S. Magistrate Judge Torres), aff'd & adopted by United States District Judge, 2010 WL 3744094 (S.D. Fla. September 21, 2010)(Westlaw subscription required to access Westlaw).

In his Order Adopting Magistrates Report and Recommendation and Granting Motion to Enforce Injunction, the District Judge provided the Plaintiff with a time limit within which to withdraw the offending Claims, or face the possibility of sanctions if he did not do so:

    Plaintiff shall have twenty (20) days from the date of this Order to withdraw the Counts II-IV and VI-X from the First Amended Answer and Counterclaim.  If Plaintiff fails to voluntarily withdraw these claims, Empire's contempt motion shall be revisited by this Court.

Love v. Blue Cross & Blue Shield Ass'n, 2010 WL 3744094 at *1.

Postscript From Pacer (Following a Review of the Online Docket of This Case):  One of the other Plaintiff Doctors who was ordered to withdraw Claims filed in other Courts, has already notified the Court in this Case that he has complied with the Court's Order to withdraw them.

 

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Too Clever By Half: The Secret Story of AIG's "Releases".

   This adds to posts about AIG's attempted Secret Releases of its Counterparties given during its near-death throes in late 2008, which are posted here on June 30, 2010 entitled, "Fed Demanded Secret Waiver Immunity by AIG:  Bad Faith Too?"; also a post here on July 6, 2010, "AIG's Secret "Unknown Claims" Release Worthless Paper?", and another post exploring the Release and its language on Insurance Claims and Issues Web Log also on July 6, 2010, "Who Fleeced the Fiduciaries?  AIG's "Unknown Claims" Release Could Be ... Worthless Paper".  The contentions of the New York Fed, that these abnormal conditions are normal, are stated and addressed in a post here on July 12, 2010, "New York Fed:  'Not me'; Denies Forcing AIG Secret Release".

   The insureds or "Counterparties" on certain Credit Default Swaps or Credit Insurance issued by AIG apparently wrote up a form "Termination Agreement" for AIG to sign for each of their CDS's.  Here is a copy courtesy of New York Times reporter Ms. Louise Story:  Download AIG Termination Agreement With Release Incl. of .Unknown Claims.  The overly broad Release language is found in Paragraph 1(b)(ii) on page 2, and their "Unknown Claims" definition is just as overly broad in paragraph 1(b)(v) on page 3.

   Note that the Release language includes "claims based on breach of fiduciary duty ..., aiding and abetting fraud or breach of fiduciary duty, ... [and] breach of the implied dovenant of good faith and fair dealing".

   I have proofed and compared them to the provisions input on July 6, 2010 in the post,  "Who Fleeced the Fiduciaries?  AIG's "Unknown Claims" Release Could Be ... Worthless Paper".  All the words quoted from the "Termination Agreement" are correctly and completely quoted in the post.

   The conclusion of the July 6 post on Insurance Claims and Issues is accurate too:  "The validity and effect of the secretly kept AIG Release of Counterparties, which was unearthed by New York Times reporters Louise Story and Gretchen Morgenson, are unlikely to be accepted at face value by the Courts in the United States."  That includes the State and Federal Courts in New York.  Paragraph 11 of the "Termination Agreement" provides that it "shall be governed by and construed in accordance with the law of the State of New York," and that each of the parties to it submits to jurisdiction both in the United States District Court for the Southern District of New York, and in any New York State Court "sitting in New York City".

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New York Fed: "Not me"; Denies Forcing AIG Secret Release.

   This post adds the reaction of New York Fed General Counsel and Executive Vice President Thomas Baxter in a Letter to the Editor of The New York Times published on Friday, July 9, 2010.  Mr. Baxter took issue with a report published on June 30, 2010 in The New York Times, which is the subject of many posts:  Here on June 30, 2010 entitled, "Fed Demanded Secret Waiver Immunity by AIG:  Bad Faith Too?"; also a post here on July 6, 2010, "AIG's Secret "Unknown Claims" Release Worthless Paper?", and another post exploring the Release and its language on Insurance Claims and Issues Web Log also on July 6, 2010, "Who Fleeced the Fiduciaries?  AIG's "Unknown Claims" Release Could Be ... Worthless Paper".

Part One.  The New York Fed Makes Up a Story to Sell to Nonlawyers.  It's Sticking With It.   (Now That Nonlawyers Know About the Secret Release by AIG of "Unknown Claims"). 

   A high official in the bureaucracy of the New York Fed has responded to Louise Story and Gretchen Morgenson,  "Documents on Bailout of A.I.G. Show How Big Banks Benefited" p. A1, col. 1 (New York Times Nat'l ed., Wed., June 30, 2010).  New York Fed General Counsel and Executive Vice President Thomas C. Baxter, Jr. wrote in pertinent part in a Letter to the Editor of The New York Times that was published on Friday, July 9, 2010:

   The article suggests that a "legal waiver" clause in the agreement that terminated the credit default swap[s] was unusual; that regulators forced A.I.G. into the agreement; and that it unduly benefited the counterparties.  We disagree in every respect.  Regulators did not force A.I.G. into the waiver clause.  The waiver clause was a standard legal provision.  It was a mutual release by which A.I.G. and the counterparties released each other from liability.

[Emphasis added.]

   This was apparently big news in some quarters.  See, for example, Hugh Son, "Fed Says It Didn't Force AIG to Include Legal Waiver for Banks"  (Bloomberg.com, Friday, July 9, 2010).

Part Two.  The Real Story About Releases.  Or, When  Releases Really Are Given and How Releases Really Work.

   This is a two-part answer.  The first part of the answer is that including Mutual Releases in an agreement of this kind never happens.  (Although Mr. Baxter is correct that it purports to be a "mutual release," but he is not correct when he calls it "a waiver provision".  To lawyers and to Courts, "waiver" involves the relinquishment of a known right and not of something called "Unknown Claims".)

   Second, the language of this Release is neither ordinary or usual.  It is clear to practicing lawyers that it was inserted as a "Hail Mary" to try to protect counterparties-clients from the consequences of their own, er, deeds.  And it is also clear that the lawyers that wrote it do not practice much, and that they knew they were dealing with a prostrate 'other party' in AIG that would sign anything put in front of it at the time, and did.

   Put it in the context of its time:  This Release was given by AIG to Claimants after the Federal Reserve of New York had already decided to pay those same Claimants 100 cents on the dollar for all their Claims.  In the ordinary course of things, the settling Claimants would provide a Release of their Claims on A.I.G., and in this case, they did.

   But what did A.I.G. get as "consideration," i.e., what did it get in return for A.I.G.'s Release of the Claimants?  That the Claimants can argue that no-one can sue them regardless of what they did or did not do?  Even in 2010, that sounds unnatural.  And it is unnatural.  It is never done.

   And it is against public policy.

Conclusion.

   To sum up:  Get real, people.

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AIG's Secret "Unknown Claims" Release Worthless Paper?

    Insurance Claims and Issues Web Log posts this morning about "Who Fleeced the Fiduciaries?  AIG's "Unknown Claims" Release ... Could be Worthless Paper".  It explores Bad Faith, Fraud and Fiduciary Duties issues, among other issues arising out of this previously secret Release.

Please Read The Disclaimer There.