Tuesday, August 31, 2010

Nicholas Ellis, disbarred for insurance fraud, has been reinstated to Massachusetts bar

In In re Nicholas J. Ellis, 45 7 Mass. 413 (2010), the Supreme Judicial Court ruled last month that Nicholas Ellis, who had been disbarred in 1997 for insurance fraud, could be reinstated to the practice of law.

Ellis had been disbarred for knowingly submitting fraudulent medical records to insurance companies. His actions were part of a larger scheme by his personal injury law firm, Ellis & Ellis, to defraud insurance companies.

The SJC has found that Nicholas has been rehabilitated.

The court found that when Nicholas joined Ellis & Ellis he was new to the practice of law. The firm was established by his father and "tightly controlled" by his brother. Nicholas' wrongdoing was minor compared to the wrongdoing of the firm and his brother.

The court weighed Nicholas' wrongdoing against his post-disbarment activities, which included being the at-home parent to his children while his wife worked, attempting to become a teacher (he was unable to obtain employment because of his convictions), coaching youth teams, and charitable work through his church. He also expressed remorse about his wrongdoing.

I have mixed feelings about the ruling. It irks me that Nicholas gets brownie points for staying home with his kids. If he were a woman, would the SJC give him rehabilitation points for doing that, or for coaching a kid's team, or for doing volunteer work with a church? And I'm not too impressed with his studying to be a teacher when no school in its right mind would hire him.

It also bothers me that the SJC states that his new practice areas are sufficiently distinct from his old personal injury practice. One of his new practice areas is social security disability law. Forged medical records work just as well with the government as with insurance companies.

On the other hand, I like the idea of rehabilitation. I applaud the notion that each of us can grow beyond whatever stupid, wrong or unethical ideas we were indoctrinated with by our families, even if that growth comes in middle age.

So I give Nicholas the benefit of the doubt. Welcome back to the practice of law. I hope you prove worthy.

Thursday, August 26, 2010

New York trial court orders reinsurers to pay USF&G $246 million plus interest

Insurance attorneys talk about reinsurance cases in the same manner that divorce attorneys talk about probate court: it's a world unto itself, with its own language, rules and folkways, and not a place where one necessarily wants to wander without a guide.

Reinsurance is insurer's insurance. An insurer purchases reinsurance to protect itself from unusually high losses. For example, an insurer providing property coverage to many insureds in an area devastated by a hurricane might turn to its reinsurer to cover aggregate losses over a certain amount.

This week a major reinsurance decision was issued by a New York trial court. Although Massachusetts law is not discussed, I am writing about it here because the case illustrates issues that often come up in long-tail loss cases, including lost policies, business successions, allocation and trigger disputes, and cost-benefit analyses by insurers about when to stop fighting and start settling. And because anyone interested in the insurance world should be aware of a case in which a court orders this much money to change hands from one insurer to another.

Between 1948 and 1960 insurer USF&G issued a number of liability policies to Western Asbestos, which sold products containing asbestos.

In the mid-1960's, Western MacArthur purchased most of the assets of Western Asbestos and took over its business.

In the late-1970's, individuals injured by asbestos began suing Western MacArthur in its own right and as successor to Western Asbestos.

In 1993 Western MacArthur inititated in California a coverage action against USF&G and two other insurers, seeking coverage for the asbestos cases.

USF&G argued that Western MacArthur did not have standing to assert coverage under policies issued to Western Asbestos. To defeat that argument, Western MacArthur found a former officer of Western Asbestos and persuaded him to sign an assignment of insurance rights to Western MacArthur. Western MacArthur also convinced a California court to "revive" the long-defunct Western Asbestos to ratify the agreement. Western Asbestos intervened in the coverage litigation as plaintiff. The court ruled that USF&G lacked standing to challenge the purported assignment of insurance rights to Western MacArthur.

Neither Western MacArthur nor USF&G could locate the policies at issue. The plaintiffs presented "secondary evidence" that USF&G's lost policies provided products coverage without aggregate limits.

As a side note, Michael Aylward of Morrison Mahoney LLP circulated this fascinating, quirky article on how the plaintiffs proved coverage under lost policies.

At that point USF&G decided to engage in global settlement discussions.

In June, 2002 the parties reached a settlement agreement under which USF&G agreed to pay $975 million plus interest.

USF&G then sought coverage from its reinsurers, American Re and ECRA. That brings us to state court in New York, in the case of United States Fid. & Guar. Co. v. Am. Re-Ins. Co..

This week the court denied summary judgment to the reinsurers and granted summary judgment to USF&G, and ordered the reinsurers to pay USF&G $246 million plus 60 percent interest.

Although I'm not going to discuss the court's reasoning, I would be happy to forward a copy of the decision to anyone who wants it (thanks again to Mike Aylward who forwarded it to me and the rest of the people on the Massachusetts Reinsurance Bar Association email list).

Tuesday, August 24, 2010

First Circuit holds that under Maine law, a claim for reimbursement of educational expenses is a claim for money damages

Andrew Caplan of Gilbert & Renton, LLC sent me this case, decided by the First Circuit Court of Appeals last week:

In School Union No. 37 v. United Nat'l Ins. Co., __ F.3d __, 2010 WL 3260113 (1st Cir.), the court decided the scope of an Educator's Liability Policy.

The plaintiff, School Union 37, sought from its insurer costs incurred in defending a claim for reimbursement of non-tuition expenses, such as room, board and transportation, under the federal Individuals with Disabilities Education Act (IDEA).

The insurance policy required the insurer to "pay on behalf of the Insureds loss and defense expenses . . . for any claim due to a Wrongful Act to which the policy applies." The policy defined "claim" as "any written demand for money damages to which the policy applies."

At issue was whether the third-party claim for reimbursement was a claim for "money damages," which was undefined in the policy.

The court first held that the common law definition of money damages under IDEA is irrelevant to the definition of money damages in an insurance policy. Rather, the definition would be determined by the Maine law of contract interpretation.

The court held that, interpreting ambiguous language against the insurer, the term "money damages" encompassed the reimbursement at issue. The insured was therefore entitled to the attorney's fees it incurred.

Saturday, August 21, 2010

Massachusetts Appeals Court holds that foreclosing mortgagee is not entitled under mortgagor's policy to lost rent

Pereira owned a multi-unit rental property. Greenpoint was the mortgagee. (For those of you who have trouble keeping straight which is the mortgagor and which is the mortgagee, as my property law professor used to say, "The mortgagEE [the bank] has the monEY.")

A fire rendered all of the rental units uninhabitable. GreenPoint subsequently transferred and assigned the mortgage and associated agreements to Casco Bay. The decision does not address whether Casco Bay was aware that it was acquiring the mortgage of a destroyed property.

Pereira defaulted on his mortgage loan. Casco Bay foreclosed and purchased the property. Unsurprisingly, a large deficiency remained.

Casco Bay sought to recover lost rent on the property from Pereira's business owner's insurance policy. In Casco Bay Fin. Co., LLC v. Quincy Mut. Fire Ins. Co., 77 Mass. App. Ct. 913 (2010, the Massachusetts Appeals Court held that the standard mortgage clause, mandated by Mass. Gen. Laws ch. 175 § 88, Twelfth, does not provide coverage to a mortgagee for lost rent where the mortgagor has executed an assignment of rent to the mortgagee. The mortgage clause provides, "We will pay for covered loss of or damage to real estate to each mortgageholder . . . " The court held that rent is not included in the meaning of "real estate."

The court also held that Casco Bay could not recover under the policy's coverage for loss of business income. It held that that coverage is limited to loss of business income sustained by Pereira and was for his benefit only. Pereira's assignment of rents to the mortgagee did not give the mortgagee the right to recover, because the policy provides that the insured's rights and duties may not be transfered without the insurer's written consent.

Thanks to Mike Tracy of Rudolph Friedmann LLP for bringing this case to my attention.

Thursday, August 19, 2010

Just for fun, mostly

This comes via Linda Weaver's Armadillo Club newsletter. She attributes it to Mike Halverson of Halverson Consulting in Maryland. As Linda wrote, "since there aren't many coverage jokes floating around . . . "

Two coverage attorneys are hanging out in a bar. One gets a call from his wife and starts talking to her, but his phone goes dead. The other says, "Hey, I learned a trick for this. The wire that connects the battery to the circuitry gets corroded, see? But you rub a little salt where the wire is, and it neutralizes the corrosion and the phone starts working again. Seriously, try it." So he opens up the compartment, grabs the salt shaker off the table and starts doing it. A bouncer sees this from across the room and runs over in a fury and says: "Get the h___ out of here! Now!" And the lawyer's like: "What for? What did I do?" And the bouncer says: "Bar rules. We got a salt-in-battery exclusion!"

If you're a coverage attorney and you don't know about the Armadillo Club, I recommend that you check it out here. Based in Chicago, it has a growing membership nationally. One of the requirements for membership is that "you have to be fun, not worry about things that don't matter and not take yourself too seriously (or at least be working toward those goals)."

I belong to a lot of liability insurance groups through LinkedIn, but unless I'm having a really slow work day I generally delete all the emails without looking at them. I always open my Armadillo Club emails, though. In addition to being fun, they have good job leads and genuinely useful information.

Tuesday, August 17, 2010

Superior Court holds that Massachusetts has personal jurisdiction over New York insurer

James Nolan brought a tort action against Rochester. When Rochester's insurer, Dryden, refused to defend or indemnify it Rochester brought a coverage action against Dryden. Dryden moved to dismiss on the grounds that Massachusetts courts may not exercise personal jurisdiction over it. In Nolan v. Barr & Barr, Inc., 2010 WL 2762682, Superior Court judge Kenton-Walker disagreed.

Dryden has a principal place of business in New York and is licensed to issue insurance policies in New York. P & J is a carpet-installation business located in New York. Dryden issued a general liability policy to P & J. The policy did not limit coverage to New York.

P & J teamed with Rochester, another New York carpet-installation company, to install carpeting at the Williams College Theater in Massachusetts. P & J added Rochester to the Dryden policy as an additional insured.

Judge Kenton-Walker held that Massachusetts courts may exercise personal jurisdiction over Dryden. Although on its insurance application P & J had represented that none of its business took place outside of New York, the policy did not exclude coverage for claims outside of New York. Judge Kenton-Walker held that it was reasonably foreseeable that the insureds would be sued in Massachusetts, and Dryden should have known that it would be required to defend them in Massachusetts.

Friday, August 13, 2010

Posting a comment on this blog

Readers, please feel free to post comments on this blog. To do so, click on the title of the blog post. At the bottom of the post click on Post a Comment. Type your comment and fill out the rest of the information requested.

Your comment will not appear immediately. Because this blog was getting so many spam comments I have to moderate posts. I will post any comment, positive, negative, agreeing or disagreeing with what I have written, as long as I am sure it is not spam.

Wednesday, August 11, 2010

Superior Court describes formula to apportion insufficient insurance limit among multiple claimants

I frequently write about the importance of having adequate insurance coverage, to protect the personal assets of the insured and to protect victims of mistakes -- or worse -- that the insured might make.

There are times, however, when even what seems to be adequate coverage is not enough to compensate injured people. The Superior Court described such a situation in Providence Mut. Fire Ins. Co. v. Morancy, 2010 WL 2763255.

Morancy involved a a teenager who got drunk at a party at Morancy's house and then crashed his car into a tree, injuring his four passengers. He had auto insurance with limits of $100,000 per person and $300,000 per accident. Those insurance funds were distributed among the passengers. The insurance did not come close to compensating the passengers for their injuries, one of whose medical bills alone exceeded $900,000.

The passengers then turned to Morancy's homeowner's insurance for additional compensation. The homeowner's policy had a limit of $500,000. That limit, in addition to the auto policy limit, was insufficient to fully compensate the passengers for their injuries. The insurer requested that the court allocate the limit among them.

There was little evidence presented to the court of the passengers' future medical cost or future lost earnings. The court chose to disregard pain and suffering damages. It used only the medical costs incurred by each passenger to determine the proper allocation.

The court subtracted from the medical costs the amount each claimant had received in settlement from the auto policy. It totalled those uncompensated damages and computed each passenger's percentage share in that total by dividing the individual uncompensated damages by the total uncompensated damages. It then distributed the $500,000 limit according to those percentages.

The public service portion of this post:

The passenger who was most severely injured was a tenth grade honor roll student. She worked part-time after school and was a cheerleader. Now she has serious mental impairments that affect her cognitive skills; she has lost vision in one eye; she cannot drive and has difficulty reading and using a computer; she is currently repeating twelfth grade in an attempt to pass the MCAS; it is unlikely that she will ever be able to work; and she cannot be left home alone.

The takeaway:

1. Don't drive drunk.
2. Don't get into a car with someone who is driving drunk.
3. Don't serve alcohol or let your kid serve alcohol to someone who will drive.
4. Tell your teenagers that if they can't get home safely you will come and get them, no questions asked.

Monday, August 9, 2010

A really bad week leads to decision on res judicata effect of arbitrator's award on related action

Anthony Liquori suffered personal injuries in an automobile accident with Zachary Wyman on September 24, 2004, and was injured again in an accident with Robert Pelley on September 27, 2004.

Liquori settled his claim against Wyman for Wyman's $20,000 policy limits. He then sought underinsured motorist coverage from his own insurer, Travelers. In an arbitration of the underinsured motorist claim he submitted medical bills totalling $10,716.10.

The arbitrator ruled that based on the materials submitted, it was impossible to determine which medical bills were solely attributable to the Wyman accident and not to the Pelley accident. She held that the Wyman accident was not responsible for more than one third of his nine percent impairment rating, and awarded $4,752.93.

Liquori's claim against Pelley continued. He submitted to the court the medical bills he had submitted in the Wyman arbitration, plus some addiditonal bills.

Pelley moved to exclude from evidence the medical records and bills that had been submitted to the Wyman arbitrator, on the ground that the arbitrator's award was res judicata as to Liquori's total damages.

In Liquori v. Pelley, 2010 WL 2010875 (Mass. App. Div.) the Massachusetts Appellate Division held that there was no issue preclusion, because there was no identity of issues between the Wyman arbitration and the Pelley trial. In the Pelley trial the issue was the amount of Liquori's damages for injuries caused by the Pelley accident. In the Wyman arbitration the issue was the amount of Liquori's damages caused by the Wyman accident. The Wyman arbitration did not determine Liquori's total damages from both accidents. Even if the arbitrator implicitly determined damages from the Pelley accident, such finding was not essential to the arbitrator's determination.

Thursday, August 5, 2010

Another plug for liability insurance

I participate in a large listserve for local parents. One of the recent threads concerned problems with cakes from a local bakery. There was a long discussion about whether it was okay to post the name of the bakery or if doing so would create the risk of a libel lawsuit. One of the posters responded that for an additional $8.00 a year she added a rider to her homeowner's policy providing coverage for slander and libel. (In insurance terms slander and libel generally come within what is called "personal injury" coverage, an entirely different coverage from "bodily injury" even though the two are synonymous in other contexts.)

Years ago I defended a couple who was sued when they publicly opposed a telephone sex company renting space in the mixed use commercial and residential condominium building where they lived. After several years of litigation they not only prevailed but were awarded their attorney's fees. Had they not had personal injury insurance, however, the process could easily have bankrupted them or forced them into an unfair settlement.

Liability insurance provides not only indemnity (payment of damages to the claimant after the insured loses at trial or settles the case) but also defense, which is sometimes called lawsuit insurance. Because there is always a risk of being sued even when you have done nothing wrong, having such insurance can save you from the tens of thousands of dollars it can cost simply to have a groundless lawsuit dismissed.

Tuesday, August 3, 2010

A crisis that will affect insurers, insureds, and everyone else

The Massachusetts court system is facing a massive budget crisis, and it's going to impact all of us in all kinds of ways. Because this is a blog about insurance law I won't go into how it will affect accused criminals and victims of crime, people trying to get divorced or to buy or sell a house, businesses, customers, employees, and . . . well, everyone in every aspect of their life.

Getting a firm date for a civil trial in Massachusetts has always ranged from frustrating to really, really frustrating. But now it's worse than ever. The last trial I had in Superior Court received about eight continuances, all but the first one at the initiation of the court, and several of them because there was no judge assigned to the courtroom.

It used to be that when I decided what county to file a case in, I would think about which courthouses had the best rotation of judges for the particular issue. Now I think about which county my case is most likely to ever see the light of day in a courtroom.

And, folks, that was the condition before the most recent round of budget cuts. Massachusetts Lawyers Weekly reports that the current round of budget cuts will require that 250 to 300 court jobs be eliminated and that 14 courthouses be closed.

How will these cuts affect insurance? Here's a minor example: Last week the Supreme Judicial Court, in Papadopoulos v. Target Corp., 457 Mass. 368 (2010), overturned well over a century of established law about when a landowner can be liable for someone slipping and falling on ice or snow.

The SJC replaced a fairly cut and dry standard -- natural versus unnatural accumulation -- with the standard of reasonableness. That means that there is whole new body of law that needs to be developed before plaintiffs can determine whether they have a viable claim and before general liability and homeowners insurers can know whether they should settle a case or defend it.

And that body of law can't be developed without judges with the resources to hear cases. Almost all the slip and fall on snow and ice cases that ten years ago would have gone before a judge, either on summary judgment or at trial, will now go to mediation or arbitration. That means no body of law will develop, and that means everybody--claimants, insureds, insurers, and the general public, will be acting on guesswork. One of the most important bases of our legal system --stare decisis--the system under which judges are bound by precedent, cannot occur without that precedent being made by the courts. If you walk outside in the wintertime; or if you are an insurance adjuster trying to determine the settlement value of a claim, a landowner or a businessowner or a homeowner trying to decide whether you need to put salt or sand on your sidewalk if there is a dusting of snow; of you are a plaintiff's attorney or a defense attorney trying to do the best job you can for your clients, you are the loser here.

For information about help court officials are requesting, click click here. You can check for periodic updates from the courts here.