Saturday, June 20, 2009

United States District Court holds that "period of restoration" includes time waiting for insurance payment

In my last couple of posts I have written about Vermont Mut. Ins. Co. v. Petit, in which the United States District Court for the District of Massachusetts discussed issues relating to recovery of lost rental value of units after a fire.

The policy provided for lost rental income "for the duration of the reasonable period of time need for [the insured] to reenter business plus any delay attributable to [the insurer's] failure to perform its duties under the policy.

The insurer argued that the restoration period should include only the time "necessary and appropriate to complete the estimates prior to beginning construction." The insureds argued that the restoration period should also include "the entirety of this litigation if payment if not made beforehand" by the insurer, arguing that the typical insureds cannot begin reconstruction until they receive payment from the insurer. The court agreed with the insureds that the period of restoration includes the time up until they receive the settlement from the insurer.

United States District Court holds that depreciation is not a discontinuing expense

In my last post I discussed the United States District Court of the District of Massachusetts case of Vermont Mut. Ins. Co. v. Petit. The case concerns the fair rental value of units that have been destroyed by fire.

Under the terms of the insurance policy at issue the fair rental value awarded to the insureds following a fire is decreased by "any expenses that do not continue while that part of [the Property] rented or held for rental is not fit to live in." Such discontinuing expenses include cleaning and maintenance fees, since the owners do not have to pay such fees after the property has been destroyed by fire.

The court held that depreciation is not a discontinuing expense. In other words, the insurance award would not be lowered by the amount of depreciation the insureds report on their tax returns.

The insurer argued that depreciation is a discontinuing expense because depreciation is an expense that affects income, as demonstrated by the insureds' tax returns.

The court disagreed. It stated that depreciation "is not a cash expense, but 'an accounting function to spread the cost of an asset over its useful life.'" It noted that depreciation would not affect the insureds' cash flow on a month-to-month basis. "Moreover, because depreciation is an accounting factor for tax purposes, including it as a discontinuing expense would lead to 'inconsistent results . . . depending solely on whether the insured took depreciation in his tax return.'"

Finally, the court noted that depreciation was effectively accelerated because it was deducted from the insureds' property damages recovery. Also deducting it from their rental income would amount to double-counting.

United States District Court holds that "fair rental value" is determined by current leases

In Vermont Mut. Ins. Co. v. Petit the United States District Court for the District of Massachusetts decided how to determine fair rental value of units after a fire.

The insurer, Vermont Mutual, argued that the rental value should be based on the rent collected in the two calendar years before the fire. The insureds based their computaton on the rental contracts in effect at the time of the fire.

The court agreed with the insureds, stating that theirs is the best evidence of the "fair market value," which is "the highest price which a hypothetical willing buyer would pay to a hypothetical willing seller in an assumed free and open market."

Tuesday, June 16, 2009

Superior Court holds that insured not required to pay interest on recovered artwork

In two recent posts I have discussed Apthorp v. OneBeacon Ins. Co.

Another issue the court discussed with respect to damages was whether the insured was required to pay interest to the insurer. Judge Garsh held that no interest was required. The original agreement between the insurer and the insured stated that the insured would repay only the amount it received if the stolen picture was found. Judge Garsh wrote, "OneBeacon is not entitled unilaterally to rewrite the agreement that the insurer drafted to add a requirement that interest be paid to the insurer from the date of its payment for the loss."

Friday, June 12, 2009

Hudson crash survivors not receiving insurance

The New York Times has an interesting article on insurance issues facing the Hudson crash survivors. AIG, the airline's insurer, is refusing to pay the passengers' claims for medical expenses and lost property.

Although the article pulls on the heartstrings, from an insurance standpoint it makes sense that a liability insurer would not pay in the absence of negligence by the insured airline. The passengers claim that AIG is implying that they are to blame for their lost property and medical expenses; but in fact AIG is merely asserting that the airline is not at fault.

Wednesday, June 10, 2009

Superior Court rules that insurer is entitled to appraised value of returned painting despite uncertainty over whether it paid the insured that value

In my last post I discussed Apthorp v. OneBeacon Ins. Group, LLC.

Another issue in that case was how much the insurer should be reimbursed once the painting was found. When the painting was stolen other items owned by the insured were also stolen. The insured gave the insurer an appraisal valuing the painting at $25,000. The insured provided an estimated value of $65,000 for other stolen items, and did not provide any estimated or appraised value for other items. The insurer paid the coverage limit of $32,500.

Judge Garsh rejected the insured's argument that the insurer paid half of the value of all the items, and therefore it paid $12,500 for the painting and should be reimbursed only that amount. She wrote that the insured "ignore[s] that the schedule of items sent to the adjuster had numerous items with no estimated values, making the insured's loss greater than $65,000 if her estimates were accepted. The aggregate loss may actually have been less or more than $65,000." She held that it would be speculative to assign a dollar value to each one of the items stolen, so that an accurate percentage of the insurer's payment attributable to the painting could not be fixed. She therefore deemed that the insurer paid $25,000 for the loss of the painting.

Monday, June 8, 2009

Superior Court explains difference between "subrogate" and "assign"

Apthorp v. OneBeacon Ins. Group, LLC concerns a painting that was stolen in 1976. The owner was paid for the loss by her insurer, OneBeacon. The painting was recently found and is worth significantly more than its appraised value in 1976.

Both the insurer and the estate of the insured claimed ownership of the painting. Judge Garsh found that ownership had not been transferred to the insurer.

In the agreement between the insured and the insurer, the insured "subrogate[d] all right, title and interest" in the painting to the insurer. The insurer contended that by this language title to the painting was transferred to it.

Judge Garsh disagreed. She wrote that the insurer "erroneously equates 'subrogate' with 'assign.' Subrogation means substitution, not assignment or transfer. Conflating 'subrogation' and 'assignment' as if these words are interchangeable is inconsistent with the usual and ordinary meaning of the term 'subrogate.' The general rule is well established that upon the payment of a loss the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against a third person whose negligence or wrong caused the loss.' The Latin phrase 'pro tanto' means 'to that extent.' Subrogation refers to an insurer's succession to any right of action that the insured may have against the party or parties responsible for the loss after the insurer has paid the insured's claim."

Thursday, June 4, 2009

Superior Court rules that businesses are not entitled to bring claim under Mass. Gen. Laws ch. 93A § 9 for violation of Mass. Gen. Laws ch. 176D

As I posted here, consumers can bring an action against an insurance company for violations of Mass. Gen. Laws ch. 93A § 9 if the insurer violated Mass. Gen. Laws ch. 176D. Businesses, however, cannot. They must show that the actions of the insurance company violated Mass. Gen. Laws ch. 93A § 11, and a violation of 176D is not an automatic violation of § 11.

The Massachusetts Superior Court recently reaffirmed that distinction. In Watt's Water Techs.,Inc. v. Fireman's Fund Ins. Co., the insured businesses argued that they were entitled to bring a suit against insurers pursuant to § 9 because § 9 states "any person whose rights are affected by another person violating the provisions of clause (9) of section three of chapter one hundred seventy six D may bring an action in the superior court."

Judge Hinckle held that that language does not permit a business plaintiff to sue under § 9 for a violation of 176D.

Tuesday, June 2, 2009

Credit card trip insurance

Trip insurance refunds the price of a plane ticket in the event of sickness or death of an immediate family member. You can generally purchase it at the same time that you buy your plane tickets.

It turns out that my credit card provides the same trip insurance automatically.

The moral: Look at your cardholder benefits guide that is mailed to you every year or so. You never know what you might find.