For anyone affected by the changes in the flood plain maps

Yesterday I posted on the changes to the flood plain maps in Massachusetts. Jenifer McKim, a reporter with The Boston Globe, is interested in speaking with people whose flood insurance has been or will be affected by the new maps. If you are interested in speaking with her you can reach her at jmckim@globe.com.

Changes to flood plain maps in effect or coming soon in Suffolk and other counties

Jenifer McKim of The Boston Globe alerted me to changes in flood plain maps being implemented in Massachusetts.

I have posted here and here about the National Flood Insurance Program. In that program FEMA subsidizes and at time issues flood insurance to homeowners.

Mortgage lenders require homeowners who live within flood plains to have flood insurance. FEMA is in the process of changing its flood plain maps county by county in Massachusetts.

I spoke with Chris Busch, the Executive Secretary of the Conservation Commission for the City of Boston. He informed me that the new maps for Suffolk County (which is Boston) went into effect on September 25, 2009. The changes to designated flood zones are based on better computer imaging of topography since the last time the maps were updated, between 1982 and 1990.

The City of Boston made an effort to contact homeowners whose houses are newly designated in flood plains, because if they purchased flood insurance before September 25 their old rates could be grandfathered in. There are some homeowners whose property was in a flood plain under the old maps but not under the new maps. They may not be required to carry flood insurance any more, but neither the city nor FEMA has made an effort to contact them. Dorchester is the most affected neighborhood in Boston, particularly Savin Hill and Port Norfolk.

Mortgage lenders can require homeowners to have flood insurance even if they are not in a flood plain, if they are in a "buffer zone"--an area outside by near a flood plain.

Appellate Division holds no right to PIP benefits where medical bills have been paid by Medicare and Medicaid

In Chery v. Metro. Prop. and Cas. Ins. Co., 2009 WL 3381597, an insured sought PIP payments for a medical bill of $360.63. The bill had been paid by Medicare and Medicaid prior to the insured submitting it to the PIP carrier.

The court held that the PIP carrier had no obligation to pay the bill because the PIP statute:

mandates only that PIP payments “shall be due and payable as loss accrues, upon receipt of reasonable proof of the fact and amount of expenses and loss incurred.” As the $360.63 Caritas bill had been paid in full in April, 2008, it was not even “due and payable” when submitted to Metropolitan in June 23, 2008 . . . . Further, Chery's concern about future action by Medicare or Medicaid to seek reimbursement out of any potential tort recovery by her against the tortfeasor in no way suggested any obligation by Metropolitan to provide PIP benefits for the paid bill. “The PIP ‘benefit’ to an injured person, in substance, is the right, inter alia, to be held harmless by the insurer from claims of providers who provided treatment to the injured person.” Ny v. Metropolitan Prop. & Cas. Ins. Co., 51 Mass.App.Ct. 471, 476 (2001). Chery was in no danger of any claim against her by Caritas, whose bill had been paid in full.

U.S. District court holds that there is no coverage to indemnify officers and directors where there is no coverage elsewhere in the policy

In my last few posts I've been discussing Genzyme Corp. v. Fed. Ins. Co., 2009 WL 3101025.

The court held that, because there was no coverage elsewhere in the policy, there was also no coverage under a clause covering all loss for which the insured granted indemnification to its officers and directors. The ruling was based on the public policy that allowing coverage in such circumstances would lead to fraud and chicanery:

[I]t makes little sense to allow a corporation to sidestep coverage limitations in its insurance policy through the simple expedient of claiming that a settlement payment was made to indemnify its directors and officers. Since a corporation can only act through its corporate agents, it will often be the case that when a shareholder can bring a claim against the corporation, she can also bring one against its directors and officers. As the court concluded in the New York case of Reliance Group Holdings, Inc. v. National Union Fire Insurance Co., 188 A.D.2d 47, 54, 594 N.Y.S.2d 20 (N.Y.App.Div.1993), the approach supported by Genzyme would encourage fraud by insured corporations:

Under the construction urged by [the insured corporation and its officer], if an officer or director was sued together with the corporation, the corporation could make full or partial restitution of the embezzled or fraudulently obtained funds purportedly on behalf of its officer, adopt a resolution indemnifying the officer, and then successfully make claim against its D & O insurer for the full amount of the settlement.

The Court refuses to construe the Executive Protection Policy in a manner that would encourage such chicanery.

U.S. District Court discusses meaning of "purchase"

In my last couple of posts I have been discussing Genzyme v. Fed. Ins. Co., 2009 WL 3101025 (D. Mass.).

The court held that a separate, sufficient ground to find no coverage for the stock-trade transaction was a "bump-up provision" of the policy, which stated that the insurer would not be liable for a loss "based upon, arising from, or in consequence of the actual or proposed payment by any Insured Organization of allegedly inadequate . . . consideration in connection with its purchased of securities issued by any Insured Organization." (Italics added.)

The insured admitted that it gave one class of shares, which are the equivalent of money, to holders of another class of shares in exchange for their relinquishment of those shares. The insured argued that it did not obtain anything in return. The court disagreed, holding that the insured "acquired an intangible right that it did not possess before - the right to cancel the outstanding Biosurgery Division tracking stock shares, which Genzyme wanted to do in order to reorganize its capital structure." The court held that the share exchange was "unambiguously a 'purchase' within the natural and ordinary meaning of the word."

Why thieves can't get insurance

In my last post I discussed Genzyme Corp. v. Fed. Ins. Co., 2009 WL 3101025 (D. Mass.).

In that decision Judge Gertner included an interesting discussion of a fundamental tenet of insurance law: a "loss" does not include restoration of an ill-gotten gain.

A thief should not be able to claim the return of stolen property as an insurable loss. Similarly, an individual who breaches her contract and then is forced to pay damages should not be able to seek indemnification under an insurance policy. [This is an overstatement; there are circumstances when insurance covers damages flowing from a breach of contract.] If I pay only $100 for an item for which I promised to pay $200, and I am later ordered by a court to pay the additional $100, I should not be able to claim the additional $100 as an insurable loss. Had I paid the full $200 due up front, then clearly no part of the $200 would constitute loss covered by insurance. The dilatory nature of my obligatory payment should not transform it into an insurable event.

U.S. District Court holds that settlement of shareholder claim for unfair stock redistribution is not an insured loss

In Genzyme v. Federal Ins. Co., 2009 WL 3101025 (D. Mass.) Judge Gertner held that a settlement of a claim of unfair stock redistribution is not an insurable loss pursuant to the commonly understood meaning of the word "loss" or under public policy.

The underlying plaintiffs alleged that Genzyme's directors and officers conspired to benefit holders of one type of Genzyme stock at the expense of holders of another type of Genzyme stock. Genzyme agreed to settle the claim by making a payment of $64 million to the plaintiff class, owners of the disadvantaged stock. Genzyme then sought reimbursement from a Directors and Officers ("D & O") insurance policy. Judge Gertner held that the payment was not a "loss" covered by the policy:

Genzyme may not have benefitted in the Share Exchange, but the existing General Division's shareholders surely did. And the Settlement Payment was meant to redress that imbalance. The question then is: When a corporation pays a settlement to resolve a claim that it benefitted one group of shareholders at the expense of another group of shareholders, is this settlement payment an insurable loss? The answer to this question must undoubtedly be "no."

Judge Gertner explained this answer with an analogy to dividing a milkshake between two sons, apparently a reference to the movie There Will Be Blood. While I'm sure her analogy would make sense if I pondered it, or perhaps watched the movie during my copious free time, luckily she also wrote plainly:

Genzyme should not be able to divide the benefits of equity ownership among its shareholders one way, redistribute those benefits, and then demand indemnification from its insurer for the redivision. If Genzyme's interpretation of the Settlement Payment as a "loss" were correct, one could imagine how insured companies could transform insurance policies into profit centers for their businesses. A corporation merely need issue several classes of shares, cancel one class of shares in an arguably unfair way, and then demand that its insurer pick up the tab for the resulting judgment or settlement. The shareholders whose shares were "cancelled" would be compensated through judgment or settlement, and the corporation's other shareholders would obtain the benefits flowing from the share cancellation while shifting a portion of its costs to the corporation's insurer. Everyone would win, except for the insurance company forced to bear the loss of paying off the disgruntled shareholders.

Moving violations and car insurance rates

I got my first moving violation ticket last week. Sadly it was well-deserved. Naturally my big concern was whether it would affect my car insurance rates. Happily it won't.

Massachusetts uses the Safe Driver Incentive Plan, or SDIP. Under SDIP insurance rates are affected by at-fault accidents or traffic violations. However, no points are assigned for the first minor traffic violation. Major violations include things like leaving the scene of the accident after injuring someone, and operating after your license is revoked. Minor violations include failure to stop at a signal and speeding.

When an insurer refuses to enter into a reasonable settlement agreement

In my last post I discussed the duty of an insurer to enter into a reasonable settlement agreement. What about when an insurer fails to do so?

“The insurer may also notify the insured of a reasonable settlement offer and give the insured an opportunity to accept the offer or assume its own defense.” Medical Malpractice Joint Underwriting Ass'n v. Goldberg, 425 Mass. 46, 59 (1997).

I am not aware of any Massachusetts case that discusses the exposure of the insurer if it notifies the insured of a settlement offer and gives it the opportunity to accept the offer or assume the defense. If the insured pays the settlement amount and the declaratory judgment action later results in a finding of coverage, the insurer is clearly liable to reimburse the insured for the judgment amount. If the insurer is found to have breached Mass. Gen. Laws ch. 93A in refusing to pay the settlement amount itself, it would be liable for 93A damages, which includes costs and attorney’s fees, and can include up to treble damages.

Where there is coverage under the policy, if the insurer fails to settle where no reasonable insurer would have refused to settle, and also fails to tender the defense to the insured, and an excess judgment is eventually entered, the insurer is liable for the amount of the actual judgment. DiMarzo v. Am. Mut. Ins. Co., 389 Mass. 85, 101-102 (1983). But see Bolden v. O’Connor Café of Worcester, Inc., 50 Mass. App. Ct. 56, 68 (2000) (questioning the analysis of DiMarzo in the context of a subsequent settlement protecting the insured from liability for an excess judgment).

An insurer's duty to settle when defending under a reservation of rights

As a general rule an insurer is liable to an insured for failing to settle a case within the policy limits “if no reasonable insurer would have failed to settle the case within the policy limits.” Hartford Casualty Ins. Co. v. New Hampshire Ins. Co., 417 Mass. 115, 121 (1994).

I am not aware of any Massachusetts case that discuss the duty of an insurer to settle where the insurer is defending under a reservation of rights. However, an insurer and an insured may agree that the insurer will settle a case within the policy limits and then seek indemnification from the insured on the grounds that there was no coverage under the policy. Medical Malpractice Joint Underwriting Ass’n v. Goldberg, 425 Mass. 46, 56 and fn 26 (1997). If the insured agrees to those terms, there is no reason why the general rule should not apply.