I have previously written about a decision of the United States District Court for the District of Massachusetts in the case of Manganella v. Evanston Ins. Co., 2011 WL 5118898 (D. Mass.). A Jasmine employee, Burgess, sued Jasmine and another employee, Manganella, on the ground that she had been sexually harassed by Manganella.
Jasmine sought defense and indemnity under an insurance policy issued by Evanston Insurance. Evanston denied coverage on the ground that the sexual harassment did not happen in its entirety after the policy period began, as required for coverage under the policy.
The District Court granted summary judgment to Jasmine, holding that Evanston had not met its burden of proving that the harassment began before the policy period.
Evanston appealed to the First Circuit Court of Appeals. The issue on appeal was whether the finder of fact, rather than a judge deciding a question of law, must conclude that the sexual harassment did or did not begin before the policy period.
Burgess's complaint alleged that Manganella had subjected her to sexual harassment throughout her employment with Jasmine, which began prior to the policy period. She later filed an affidavit stating that the harassment did not begin until after the policy period began. Later she asserted that although Manganella made off-color comments prior to the policy period, she was not threatened by him until after the policy period began.
In Manganella v. Evanston Ins. Co., __ F.3d __, 2012 WL 6217625 (1st Cir.), the First Circuit held that considered in the light most favorable to Jasmine, Burgess's statements do not necessarily show that the conduct giving rise to the discrimination complaint began before the policy period. The court also held that when considered in the light most favorable to Evanston, the statements could support the inference that the harassing conduct did include the pre-policy period statements.
The court held that the undisputed facts therefore do not entitle either party to summary judgment. Rather, the issue "is a quintessential question for a factfinder."
Tuesday, December 25, 2012
Thursday, December 13, 2012
New York times discusses allocation of loss in football concussion lawsuits
The article, here, is a bit overwrought about possible difficulty that youth sports leagues might have in obtaining insurance in the future, but it does nicely describe the issues facing both insureds and insurers at the beginning of long-tail loss claims.
Tuesday, December 11, 2012
US District Court holds that for forgery coverage an email promising compensation is not similar to a check, draft or promissory note
Kenneth Engleman alleged that CustomMade and its CFO induced him to leave a lucrative job to work for CustomMade as a partner and co-owner of the company, but then did not follow through with the promises.
During the course of the underlying suit, CustomMade's CFO realized that a critical email allegedly sent by him to Engleman had been altered. At least in part as a result, the court dismissed Engelman's complaint.
CustomMade asserted that it was entitled to defense costs under forgery coverage in an insurance policy issued to it by Sentinel. Sentinel denied coverage for the claim.
In CustomMade Ventures Corp. v. Sentinel Ins. Co., Ltd., 2012 WL 4321060 (D. Mass.), the United States District Court for the District of Massachusetts granted summary judgment to Sentinel. The court noted that the forgery coverage came within a special property coverage form, and that for it to apply the loss must involve covered property. The policy defined covered property as "checks, drafts, promissory notes, or similar written promises, orders or directions to pay a sum certain."
CustomMade argued that the email was a written promise to pay a sum certain and therefore came within the forgery coverage. The court held that the email was not a "similar written promise" to checks, drafts, or promissory notes.
During the course of the underlying suit, CustomMade's CFO realized that a critical email allegedly sent by him to Engleman had been altered. At least in part as a result, the court dismissed Engelman's complaint.
CustomMade asserted that it was entitled to defense costs under forgery coverage in an insurance policy issued to it by Sentinel. Sentinel denied coverage for the claim.
In CustomMade Ventures Corp. v. Sentinel Ins. Co., Ltd., 2012 WL 4321060 (D. Mass.), the United States District Court for the District of Massachusetts granted summary judgment to Sentinel. The court noted that the forgery coverage came within a special property coverage form, and that for it to apply the loss must involve covered property. The policy defined covered property as "checks, drafts, promissory notes, or similar written promises, orders or directions to pay a sum certain."
CustomMade argued that the email was a written promise to pay a sum certain and therefore came within the forgery coverage. The court held that the email was not a "similar written promise" to checks, drafts, or promissory notes.
Tuesday, December 4, 2012
New York state government creates a great resource
The state of New York has set up a website to monitor how insurers are responding to Hurricane Sandy claims. It includes the average time it takes each insurer to respond to, pay, and resolve claims, and the percentage of complaints out of total claims filed. This will be a useful resource for anyone choosing a homeowner's insurer.
Tuesday, November 27, 2012
Mass. Appellate Division holds that failure to attend two IME's after notification by mail sufficient to deny PIP claim
Arbella Mutual Insurance Company denied PIP payments to Chiropractic Care Centers, Inc. when its patient, Arbella's insured, failed to attend two scheduled independent medical examination.
In Chiropractic Care Centers, Inc. v. Arbella Mut. Ins. Co., 2012 WL 5830706 (Mass. App. Div.), the Massachusetts Appellate Division held that the insured's failure to appear for the IMEs after being notified of them by letter was a wilful failure to attend, justifying denial of PIP payments to Chiropractic Care.
The court noted that under Massachusetts law, the mailing of a properly addressed letter constitutes prima facie evidence of the intended recipient's receipt of the mailing.
In Chiropractic Care Centers, Inc. v. Arbella Mut. Ins. Co., 2012 WL 5830706 (Mass. App. Div.), the Massachusetts Appellate Division held that the insured's failure to appear for the IMEs after being notified of them by letter was a wilful failure to attend, justifying denial of PIP payments to Chiropractic Care.
The court noted that under Massachusetts law, the mailing of a properly addressed letter constitutes prima facie evidence of the intended recipient's receipt of the mailing.
Tuesday, November 20, 2012
Friday, November 16, 2012
First Circuit interprets exclusion for claims arising out of restraint of trade
Two real estate developers, Rubloff Development Corp. and McVickers Development, had deals to develop shopping centers that would include Wal-Mart stores.
In an underlying complaint against Saint Consulting Group the developers alleged that Saint, a company that provides advice and advocacy in land use disputes, had a niche practice in which, acting on behalf of rival grocery store chains, it aims to block or delay Wal-Mart stores from opening in a rival's territories.
In 2007, Supervalu allegedly hired Saint to lead a campaign to delay or block the two developments. Saint organized local landowners to oppose the developments. Saint's representative, Mayo, told a false story of his parents being evicted from their home to make room for a Wal-Mart store and retained an attorney to represent the local landowners, without revealing that both Mayo and the attorney were being paid by Saint and Supervalu.
Editorial aside: Although the court doesn't discuss it, Saint's practice is known as astro-turfing. It's an invidious and, in my view, despicable practice. Has your community had a grassroots fight over whether or not a new supermarket should be approved? The supermarket trying to come in and other area supermarkets hoping to stop the new competition may have both used astro-turfers. If so, there's a significant chance that grassroots community leaders on either side of the fight were not even aware that they are being fed resources such as information and funding by the supermarket chains.
Editorial over.
Saint's efforts led the developments to be delayed, one possibly permanently.
After Mayo left Saint's employ, upstanding guy that he was, he contacted Rubloff and, in exchange for payment, turned over thousands of Saint documents detailing its scheme to block the developments.
In their suit against Saint, Rubloff and McVickers alleged that Saint violated RICO by engaging in a pattern of mail or wire fraud involving deceptions; conspiracy in restraint of trade; and tortious interference with prospective economic advantage.
The court dismissed all the underlying claims.
Saint sought defense costs under an an errors and omissions policy issued by Endurance. Endurance asserted that coverage was excluded by Exclusion N, which excludes coverage for any claim "based upon or arising out of any actual or alleged price fixing, restraint of trade, monopolization or unfair trade practices."
In Saint Consulting Group, Inc. v. Endurance Am. Specialty Ins. Co., __ F.3d __, 2012 WL 5381333 (1st Cir.), the court emphasized that Exclusion N extends to any claim arising out of restraint of trade. The term "arising out of" is construed broadly as looking at "the character of the behavior alleged."
The court noted that every count of the underlying complaint is either an antitrust claim or depends centrally on the existence of a scheme to forestall competition through misuse of legal proceedings and through deception.
The court rejected Saint's argument that Exclusion N did not apply because an Illinois court ruled in the underlying case that Saint's alleged conduct was protected against antitrust scrutiny by a legal doctrine, and since "it was not wrongful conduct, it could not be excluded from coverage by Exclusion N."
The court properly held that that argument "is a non-sequitur." Exclusion N (and more broadly, the duty to defend), does not depend on whether conduct occurred and whether it was unlawful, but on what the complaint alleged. The second amended complaint alleged an anti-competitive scheme which is excluded by Exclusion N.
Saint then made an argument that is a clear indication that it was grasping at straws: that if the exclusion applied coverage was illusory because the activities described in the complaint comprise "such a large part of its business." It was bound to lose right there -- "such a large part of its business" admits that there were other parts of its business that did not come within the exclusion.
I have occasionally made the illusory argument but only under very specific circumstances. Once I represented an insured who the coverage selection page indicated had paid an additional premium for a specific coverage, but then that coverage was excluded in the body of the policy. That's illusory. An exclusion that excludes a broad range but not all coverage is not illusory -- it's a sign that the insured needs a better agent.
One bone to pick with this decision: The court states that in a coverage case, the insured has to show coverage and then the "burden shifts" to the insurer to show that an exclusion applies. Many decisions make this same statement, but it makes no sense the in the context of a duty to defend. The duty to defend is determined by the eight corners test -- whether the facts alleged in the complaint fall within the coverage of the insurance policy as interpreted as a matter of law by the court. Ambiguous terms are interpreted against the insurer because it drafted the contract. Burdens of proof have no place in this analysis.
In an underlying complaint against Saint Consulting Group the developers alleged that Saint, a company that provides advice and advocacy in land use disputes, had a niche practice in which, acting on behalf of rival grocery store chains, it aims to block or delay Wal-Mart stores from opening in a rival's territories.
In 2007, Supervalu allegedly hired Saint to lead a campaign to delay or block the two developments. Saint organized local landowners to oppose the developments. Saint's representative, Mayo, told a false story of his parents being evicted from their home to make room for a Wal-Mart store and retained an attorney to represent the local landowners, without revealing that both Mayo and the attorney were being paid by Saint and Supervalu.
Editorial aside: Although the court doesn't discuss it, Saint's practice is known as astro-turfing. It's an invidious and, in my view, despicable practice. Has your community had a grassroots fight over whether or not a new supermarket should be approved? The supermarket trying to come in and other area supermarkets hoping to stop the new competition may have both used astro-turfers. If so, there's a significant chance that grassroots community leaders on either side of the fight were not even aware that they are being fed resources such as information and funding by the supermarket chains.
Editorial over.
Saint's efforts led the developments to be delayed, one possibly permanently.
After Mayo left Saint's employ, upstanding guy that he was, he contacted Rubloff and, in exchange for payment, turned over thousands of Saint documents detailing its scheme to block the developments.
In their suit against Saint, Rubloff and McVickers alleged that Saint violated RICO by engaging in a pattern of mail or wire fraud involving deceptions; conspiracy in restraint of trade; and tortious interference with prospective economic advantage.
The court dismissed all the underlying claims.
Saint sought defense costs under an an errors and omissions policy issued by Endurance. Endurance asserted that coverage was excluded by Exclusion N, which excludes coverage for any claim "based upon or arising out of any actual or alleged price fixing, restraint of trade, monopolization or unfair trade practices."
In Saint Consulting Group, Inc. v. Endurance Am. Specialty Ins. Co., __ F.3d __, 2012 WL 5381333 (1st Cir.), the court emphasized that Exclusion N extends to any claim arising out of restraint of trade. The term "arising out of" is construed broadly as looking at "the character of the behavior alleged."
The court noted that every count of the underlying complaint is either an antitrust claim or depends centrally on the existence of a scheme to forestall competition through misuse of legal proceedings and through deception.
The court rejected Saint's argument that Exclusion N did not apply because an Illinois court ruled in the underlying case that Saint's alleged conduct was protected against antitrust scrutiny by a legal doctrine, and since "it was not wrongful conduct, it could not be excluded from coverage by Exclusion N."
The court properly held that that argument "is a non-sequitur." Exclusion N (and more broadly, the duty to defend), does not depend on whether conduct occurred and whether it was unlawful, but on what the complaint alleged. The second amended complaint alleged an anti-competitive scheme which is excluded by Exclusion N.
Saint then made an argument that is a clear indication that it was grasping at straws: that if the exclusion applied coverage was illusory because the activities described in the complaint comprise "such a large part of its business." It was bound to lose right there -- "such a large part of its business" admits that there were other parts of its business that did not come within the exclusion.
I have occasionally made the illusory argument but only under very specific circumstances. Once I represented an insured who the coverage selection page indicated had paid an additional premium for a specific coverage, but then that coverage was excluded in the body of the policy. That's illusory. An exclusion that excludes a broad range but not all coverage is not illusory -- it's a sign that the insured needs a better agent.
One bone to pick with this decision: The court states that in a coverage case, the insured has to show coverage and then the "burden shifts" to the insurer to show that an exclusion applies. Many decisions make this same statement, but it makes no sense the in the context of a duty to defend. The duty to defend is determined by the eight corners test -- whether the facts alleged in the complaint fall within the coverage of the insurance policy as interpreted as a matter of law by the court. Ambiguous terms are interpreted against the insurer because it drafted the contract. Burdens of proof have no place in this analysis.
Monday, November 5, 2012
Wednesday, October 31, 2012
Just what you need for Halloween
Tired of handing out candy? The older kids scoff at stickers and playdough.
How about zombie insurance? As Horrance.com points out, car insurance is useless if a zombie has eaten you.
How about zombie insurance? As Horrance.com points out, car insurance is useless if a zombie has eaten you.
Monday, October 22, 2012
New Cavalcade of Risk is up
For a roundup of risk-related blog posts from around the web, take a look here. Special thanks to My Personal Finance Journey for including my post on insurance as a kind of tax as one of the top three posts for this Cavalcade.
Thursday, October 18, 2012
Great article on certificates of insurance
Virginia Business has an excellent article by Collin Hite on the uselessness of certificates of insurance. I wholeheartedly agree with his analysis.
The article discusses a new law in Virginia that attempts to prevent certificates of insurance from containing misleading language about what rights the certificate gives a certificate-holder. While that may be occasionally helpful, in my view the real problem with certificates of insurance is that they exist at all. As they cannot be used as proof of coverage, why issue them? The safer practice would be for an entity seeking proof that it is an additional insured on someone else's policy to require that the primary insured provide a copy of the coverage selection page. If the coverage selection page does not list additional insureds by name, that part of the policy that does name or define additional insureds should be provided. Although that won't prevent the problem of a policy being canceled by the primary insured without notice to the additional insured, it would be a step in the right direction.
The article discusses a new law in Virginia that attempts to prevent certificates of insurance from containing misleading language about what rights the certificate gives a certificate-holder. While that may be occasionally helpful, in my view the real problem with certificates of insurance is that they exist at all. As they cannot be used as proof of coverage, why issue them? The safer practice would be for an entity seeking proof that it is an additional insured on someone else's policy to require that the primary insured provide a copy of the coverage selection page. If the coverage selection page does not list additional insureds by name, that part of the policy that does name or define additional insureds should be provided. Although that won't prevent the problem of a policy being canceled by the primary insured without notice to the additional insured, it would be a step in the right direction.
Tuesday, October 16, 2012
Representing an insurance company does not make you a bad person
In the Massachusetts Senate race between Scott Brown and Elizabeth Warren, Brown has attacked Warren for representing Travelers Insurance in asbestos litigation. Warren has responded with ads in which family-members of people who died from asbestos-related illnesses defend her, asserting that she fought to increase and protect settlement money available to the victims and their families.
What if that wasn't Warren's role? What if she had been hired to simply defend Travelers from asbestos claims, to argue that the claims were excluded by the policies, or that the insured was not liable? Would that mean she is in the pocket of corporations and therefore should not be elected as a Democrat?
Without going into a Democrat/Republican/all politicians are sellouts tirade, no. I spend the first six years of my legal career as an insurance defense attorney, and I still represent insurers both directly and indirectly through subcontract work. There have been times when, given my personal views, I felt somewhat uncomfortable with the cases I was given. A low point came when I represented as insurance defense counsel a used car dealer that was being sued for allegedly charging customers illegal fees. I've represented insured defendants who discovery showed were clearly liable.
In all of my cases, no matter which side I'm on, I zealously represent my clients. Sometimes zealous representation means advising the insurer to settle. Sometimes it means advising the insurer not to settle even though liability is clear, because the plaintiff is asking too much in damages.
There are plaintiffs attorneys who are incompetent and don't give their clients good advice about a case, and there are insurance defense attorneys who are incompetent and don't give their clients good advice about a case. In my experience, those attorneys are relatively rare. Competent representation -- an ability to analyze the law, the facts, and the risks -- on both sides leads to fair outcomes.
I don't know enough about Warren's role in the asbestos litigation to judge it. But I do know that the mere fact that she represented an insurer in asbestos litigation does not, in and of itself, tell us anything about her character or her worthiness to hold office.
What if that wasn't Warren's role? What if she had been hired to simply defend Travelers from asbestos claims, to argue that the claims were excluded by the policies, or that the insured was not liable? Would that mean she is in the pocket of corporations and therefore should not be elected as a Democrat?
Without going into a Democrat/Republican/all politicians are sellouts tirade, no. I spend the first six years of my legal career as an insurance defense attorney, and I still represent insurers both directly and indirectly through subcontract work. There have been times when, given my personal views, I felt somewhat uncomfortable with the cases I was given. A low point came when I represented as insurance defense counsel a used car dealer that was being sued for allegedly charging customers illegal fees. I've represented insured defendants who discovery showed were clearly liable.
In all of my cases, no matter which side I'm on, I zealously represent my clients. Sometimes zealous representation means advising the insurer to settle. Sometimes it means advising the insurer not to settle even though liability is clear, because the plaintiff is asking too much in damages.
There are plaintiffs attorneys who are incompetent and don't give their clients good advice about a case, and there are insurance defense attorneys who are incompetent and don't give their clients good advice about a case. In my experience, those attorneys are relatively rare. Competent representation -- an ability to analyze the law, the facts, and the risks -- on both sides leads to fair outcomes.
I don't know enough about Warren's role in the asbestos litigation to judge it. But I do know that the mere fact that she represented an insurer in asbestos litigation does not, in and of itself, tell us anything about her character or her worthiness to hold office.
Friday, October 12, 2012
Another side to insurance coverage litigation
Over at FMG Law's BlogLine, Seth Kirby has posted an interesting article on the marketing risk to insurers of insurance coverage litigation. I agree with his points. On the one hand, insurers have an absolute right -- perhaps even a duty as public corporations -- to determine both liability and damages before settling, even in cases that initially seem obvious. Bad faith comes in when the insurer takes an unreasonable amount of time to do so, or when it continues to deny a claim or it fails to make a reasonable settlement offer after it has determined that its insured is liable and the claimant suffered damages.
Kirby points out that in this age of blogs and social media, an insurer runs a risk of appearing to act in bad faith even when it is reasonably investigating or litigating a claim. The case he discusses is that of a woman who was killed in a car accident. Her family sought coverage under the uninsured motorist coverage of her policy and the insurer litigated rather than paying immediately. This is a case I have heard of before -- thanks to publicity the case has gained on the internet. I haven't seen enough to convince me one way or another about whether the insurer is acting in bad faith in its investigation and litigation of the claim. But, as Kirby states in the article, insurers now need to be aware of how easy it is to paint them as a bad actor in such a situation.
Kirby points out that in this age of blogs and social media, an insurer runs a risk of appearing to act in bad faith even when it is reasonably investigating or litigating a claim. The case he discusses is that of a woman who was killed in a car accident. Her family sought coverage under the uninsured motorist coverage of her policy and the insurer litigated rather than paying immediately. This is a case I have heard of before -- thanks to publicity the case has gained on the internet. I haven't seen enough to convince me one way or another about whether the insurer is acting in bad faith in its investigation and litigation of the claim. But, as Kirby states in the article, insurers now need to be aware of how easy it is to paint them as a bad actor in such a situation.
Wednesday, October 10, 2012
Insurance as a kind of tax, and a foray into socialism and outside my area of expertise
My recent posts here and here on cases addressing flood insurance under the National Flood Insurance Program got me thinking about the similarities and differences between insurance and taxes.
As we all know, taxes are one of the two things in life that are certain, and insurance is not the other thing. But -- sometimes insurance is required by the government. Flood insurance, for one, if you have a mortgage and live in a flood zone. Health insurance, in Massachusetts and soon nationally for the most part. (Don't start calling me with health insurance disputes -- I don't do those. They are different from liability insurance disputes.) Worker's comp insurance, generally. Car insurance. A fee the government requires you to pay sounds like a tax to me.
Insurance is a for-profit private-sector business. But in the case of flood insurance, the insurers are merely the plan administrators, with the losses paid by the government. In other words, the government itself is the insurer.
Taxpayers are a larger risk pool than insureds. Even if only 53 percent of Americans pay income taxes (I take no position on that), that's a whole lot of people and it makes it pretty easy to spread the risk. Then again, according to my Google search 95 percent of Americans own cars, and therefore buy car insurance in states where it is required. The insurance risk pool is subdivided, however, into insureds of each insurer.
My taxes are based, more or less, on my income. My insurance premiums may or may not be based on my level of risk. My auto premiums are based on where I live, the kind of car I drive, and my driving record. But my health insurance premiums are not based on the likelihood that I'll get sick -- everyone with my plan pays the same. That means that, like with taxes, healthy people are subsidizing health care for people who need more of it. It seems to me that, given that reality, it would make more sense to spread the risk more broadly -- among all taxpayers. That way who is subsidizing who is not based on the almost accidental decision of what health plan you happen to have, but on what you can afford to pay. (And, yeah, I know, that's socialism.)
As we all know, taxes are one of the two things in life that are certain, and insurance is not the other thing. But -- sometimes insurance is required by the government. Flood insurance, for one, if you have a mortgage and live in a flood zone. Health insurance, in Massachusetts and soon nationally for the most part. (Don't start calling me with health insurance disputes -- I don't do those. They are different from liability insurance disputes.) Worker's comp insurance, generally. Car insurance. A fee the government requires you to pay sounds like a tax to me.
Insurance is a for-profit private-sector business. But in the case of flood insurance, the insurers are merely the plan administrators, with the losses paid by the government. In other words, the government itself is the insurer.
Taxpayers are a larger risk pool than insureds. Even if only 53 percent of Americans pay income taxes (I take no position on that), that's a whole lot of people and it makes it pretty easy to spread the risk. Then again, according to my Google search 95 percent of Americans own cars, and therefore buy car insurance in states where it is required. The insurance risk pool is subdivided, however, into insureds of each insurer.
My taxes are based, more or less, on my income. My insurance premiums may or may not be based on my level of risk. My auto premiums are based on where I live, the kind of car I drive, and my driving record. But my health insurance premiums are not based on the likelihood that I'll get sick -- everyone with my plan pays the same. That means that, like with taxes, healthy people are subsidizing health care for people who need more of it. It seems to me that, given that reality, it would make more sense to spread the risk more broadly -- among all taxpayers. That way who is subsidizing who is not based on the almost accidental decision of what health plan you happen to have, but on what you can afford to pay. (And, yeah, I know, that's socialism.)
Saturday, October 6, 2012
What they're offering across the pond, now that the Olympics are over
Over at Insureblog Hank Stern writes about insurance now being offered in England for risks from social media use, such as account jacking.
Thursday, October 4, 2012
Not related to insurance coverage directly
But, hey, it's my blog.
Here's me on HuffpostLive talking about what makes a good argument:
http://live.huffingtonpost.com/#r/segment/5065f32e2b8c2a45be00011e
Here's me on HuffpostLive talking about what makes a good argument:
http://live.huffingtonpost.com/#r/segment/5065f32e2b8c2a45be00011e
Tuesday, October 2, 2012
Another First Circuit case on whether mortgage lender can increase flood insurance requirement
Last week I posted about Lass v. Bank of America, __ F.3d __, 2012 WL 4240504 (1st Cir.), in which the United States Court of Appeals for the First Circuit held that, taken as a whole, mortgage documents were ambiguous as to whether the lender could demand that the borrower increase her flood insurance coverage.
The First Circuit issued a companion opinion in the case of Kolbe v. BAC Home Loans Servicing, LP, __ F.3d __, 2012 WL 4240298 (1st Cir.).
As in Lass, Kolbe, a mortgage borrower, asserted that Bank of America's demand that he increase his flood coverage breached the terms of his mortgage contract.
The mortgage contract required that Kolbe "insure all improvements on the Property, whether now in existence or subsequently erected, against any hazards . . . for which the Lender requires insurance. This insurance shall be maintained in the amounts and for the periods that Lender requires. Borrower shall also insure all improvements on the Property, whether now in existence or subsequently erected against loss by floods to the extent required by the Secretary [of HUD]."
Kolbe was required by federal law to obtain flood insurance because his property is located in a special flood hazard zone under the National Flood Insurance Act. The minimum amount mandated by the law is coverage at least equal to the outstanding principal balance of the loan, or $250,000, whichever is less.
An aside: I find this provision shocking. I believe everyone should have adequate insurance, and I support the government regulating flood insurance to the extent that such flood insurance might not be affordable, or available at all, in flood hazard zones without such regulation. But I can see no reason why the government should mandate that homeowners are required to have insurance to protect the interests of the lenders but not of the homeowners. The lenders can protect their interests by including a flood insurance requirement in the loan contract.
Moreover, as the court noted in Kolbe, the National Flood Insurance Act was passed because major floods had required "unforeseen disaster relief measures and placed an increasing burden on the Nation's resources." By requiring insurance only to the extent of the lender's interests, the law demonstrates that the government is interested in protecting financial institutions but not homeowners.
Getting back to the decision, Kolbe purchased more than the minimum required amount of flood insurance. Bank of America subsequently sent notice to Kolbe that he was required to increase his flood insurance coverage to the total replacement cost of his property as identified in his homeowner's policy. (Everyone: if you are in a flood plain you should have flood insurance to the replacement cost of your property, regardless of what your mortgage lender says.)
The court held that the insurance provision in the contract was ambiguous, and therefore turned to extrinsic evidence to interpret it. It noted that HUD treats hazard insurance and flood insurance separately, but also that FEMA recommends replacement value flood insurance.
The court concluded that the extrinsic evidence was also, therefore, ambiguous. It held that the District Court erred when it dismissed Kolbe's complaint on the ground that the mortgage unambiguously permitted the lender to demand additional coverage.
The First Circuit issued a companion opinion in the case of Kolbe v. BAC Home Loans Servicing, LP, __ F.3d __, 2012 WL 4240298 (1st Cir.).
As in Lass, Kolbe, a mortgage borrower, asserted that Bank of America's demand that he increase his flood coverage breached the terms of his mortgage contract.
The mortgage contract required that Kolbe "insure all improvements on the Property, whether now in existence or subsequently erected, against any hazards . . . for which the Lender requires insurance. This insurance shall be maintained in the amounts and for the periods that Lender requires. Borrower shall also insure all improvements on the Property, whether now in existence or subsequently erected against loss by floods to the extent required by the Secretary [of HUD]."
Kolbe was required by federal law to obtain flood insurance because his property is located in a special flood hazard zone under the National Flood Insurance Act. The minimum amount mandated by the law is coverage at least equal to the outstanding principal balance of the loan, or $250,000, whichever is less.
An aside: I find this provision shocking. I believe everyone should have adequate insurance, and I support the government regulating flood insurance to the extent that such flood insurance might not be affordable, or available at all, in flood hazard zones without such regulation. But I can see no reason why the government should mandate that homeowners are required to have insurance to protect the interests of the lenders but not of the homeowners. The lenders can protect their interests by including a flood insurance requirement in the loan contract.
Moreover, as the court noted in Kolbe, the National Flood Insurance Act was passed because major floods had required "unforeseen disaster relief measures and placed an increasing burden on the Nation's resources." By requiring insurance only to the extent of the lender's interests, the law demonstrates that the government is interested in protecting financial institutions but not homeowners.
Getting back to the decision, Kolbe purchased more than the minimum required amount of flood insurance. Bank of America subsequently sent notice to Kolbe that he was required to increase his flood insurance coverage to the total replacement cost of his property as identified in his homeowner's policy. (Everyone: if you are in a flood plain you should have flood insurance to the replacement cost of your property, regardless of what your mortgage lender says.)
The court held that the insurance provision in the contract was ambiguous, and therefore turned to extrinsic evidence to interpret it. It noted that HUD treats hazard insurance and flood insurance separately, but also that FEMA recommends replacement value flood insurance.
The court concluded that the extrinsic evidence was also, therefore, ambiguous. It held that the District Court erred when it dismissed Kolbe's complaint on the ground that the mortgage unambiguously permitted the lender to demand additional coverage.
Thursday, September 27, 2012
First Circuit vacates District Court ruling that mortgagee can require flood insurance in excess of amount of mortgage
I posted here about the decision of the United States District Court for the District of Massachusetts in Lass v. Bank of America, in which the court held that under the terms of the mortgage agreement that mortgagee bank could require the homeowner to have more flood insurance than the bank's interest in the property (in other words, more than the mortgage amount).
The United States Court of Appeals for the First Circuit has now vacated that decision and remanded the case. In Lass v. Bank of America, __ F.3d __, 2012 WL 4240504 (1st Cir.), the court held that although the pertinent mortgage provision gives the lender discretion over the amount of flood insurance, a supplemental document given to the borrower at her real estate closing may be read to state that the mandatory amount of flood insurance imposed at that time would remain unchanged for the duration of the mortgage.
The mortgage agreement required the borrower to have flood insurance to "be maintained in the amounts and for the periods that Lender requires."
A separate document, entitled "Flood Insurance Notification," stated, "At the closing the property you are financing must be covered by flood insurance in the amount of the principle [sic] amount financed, or the maximum amount available, whichever is less. This insurance will be mandatory until the loan is paid in full."
Lass obtained flood insurance equal to $40,000, the full amount of her loan. She subsequently voluntarily increased the coverage to $100,000.
The lender later told her that she needed an additional $145,086 in flood insurance, to reflect the replacement value of the improvements on the property.
Lass refused to purchase the additional insurance. After notice to her, the bank purchased it for her and charged her escrow account for the premium.
Applying contract interpretation principles, the court held that the mortgage and notification, taken together, are ambiguous as to the lender's authority to demand increased flood coverage on Lass's property.
The United States Court of Appeals for the First Circuit has now vacated that decision and remanded the case. In Lass v. Bank of America, __ F.3d __, 2012 WL 4240504 (1st Cir.), the court held that although the pertinent mortgage provision gives the lender discretion over the amount of flood insurance, a supplemental document given to the borrower at her real estate closing may be read to state that the mandatory amount of flood insurance imposed at that time would remain unchanged for the duration of the mortgage.
The mortgage agreement required the borrower to have flood insurance to "be maintained in the amounts and for the periods that Lender requires."
A separate document, entitled "Flood Insurance Notification," stated, "At the closing the property you are financing must be covered by flood insurance in the amount of the principle [sic] amount financed, or the maximum amount available, whichever is less. This insurance will be mandatory until the loan is paid in full."
Lass obtained flood insurance equal to $40,000, the full amount of her loan. She subsequently voluntarily increased the coverage to $100,000.
The lender later told her that she needed an additional $145,086 in flood insurance, to reflect the replacement value of the improvements on the property.
Lass refused to purchase the additional insurance. After notice to her, the bank purchased it for her and charged her escrow account for the premium.
Applying contract interpretation principles, the court held that the mortgage and notification, taken together, are ambiguous as to the lender's authority to demand increased flood coverage on Lass's property.
Friday, September 21, 2012
You heard it here first
The Defense Research Institute (DRI) will be hosting a conference in Boston on June 6 and 7, 2013 on Insurance Bad Faith and Extra-Contractual Liability. No details yet. DRI attracts participants from around the country (especially from states that require continuing legal education) , so I would expect this to be an excellent networking opportunity.
Tuesday, September 18, 2012
Mass. Appeals Court holds that services by structural engineer hired by architect were "performed for" project owner
Cable Mills intended to renovate an old mill property it owned into mixed use condominium units. It hired Feingold for architectural services. Feingold hired William Barry to provide structural engineering services. Barry fell through the floor at the site. He sued Cable Mills.
Cable Mills was insured by Lloyd's, London. Lloyd's denied coverage for Barry's claim, relying on an exclusion for "bodily injury . . . for operations performed for you by independent contractors or your acts or omissions in connection with your general supervision of such operations."
Cable Mills argued that the exclusion does not apply because Feingold, not Cable Mills, retained Barry, so his services were "performed for" Feingold, not Cable Mills.
In Cable Mills, LLC v. Coakley Pierpan Dolan & Collins Ins. Agency, Inc., 82 Mass. App. Ct. 415 (2012), the Massachusetts Appeals Court agreed with Lloyd's that coverage was excluded. It held, "performance of professional engineering services essential to the project, pursuant to a contract between the property owner and its architect, sufficiently fulfills the common meaning of 'operations performed for you.'"
Cable Mills was insured by Lloyd's, London. Lloyd's denied coverage for Barry's claim, relying on an exclusion for "bodily injury . . . for operations performed for you by independent contractors or your acts or omissions in connection with your general supervision of such operations."
Cable Mills argued that the exclusion does not apply because Feingold, not Cable Mills, retained Barry, so his services were "performed for" Feingold, not Cable Mills.
In Cable Mills, LLC v. Coakley Pierpan Dolan & Collins Ins. Agency, Inc., 82 Mass. App. Ct. 415 (2012), the Massachusetts Appeals Court agreed with Lloyd's that coverage was excluded. It held, "performance of professional engineering services essential to the project, pursuant to a contract between the property owner and its architect, sufficiently fulfills the common meaning of 'operations performed for you.'"
Thursday, September 13, 2012
First Circuit holds that dec page cannot create ambiguity in flood policy terms
In McGair v. Am. Bankers Ins. Co., __ F.3d __, 2012 WL 3793130 (1st Cir. 2012), the First Circuit Court of Appeals held that the terms of a declarations page do not create an ambiguity in a flood insurance policy.
The McGairs purchased a flood insurance policy from American Bankers Insurance Company. The policy was part of the federal flood insurance program about which I've written previously. Under the program, private insurers issue and administer flood policies and claim payments are reimbursed by the Federal Emergency Management Agency (FEMA). FEMA provides a standard text for the policies, which are called Standard Flood Insurance Policies, or SFIPs.
The policy stated that it is provided "under the terms of the National Flood Insurance Act," and that it "cannot be changed nor can any of it provisions be waived without the express written consent of the Federal Insurance Administrator."
SFIPs limit coverage for personal property in basements. (According to the court in McGair, the limitation "serves to encourage construction that minimizes the risk of flooding (e.g., elevated foundations and buildings without basements.)" I'll have to suspend my disbelief on that one.)
In 2010 a flood damaged the McGairs' house and personal property in their basement. They sought compensation from American Bankers. American Bankers denied the claim, asserting the basement contents were not covered.
The McGairs sued, arguing that the Declarations Page created an ambiguity as to the scope of their policy. The Declarations Page indicated that the McGairs have a finished basement and that the contents of their home are located in the "basement and above." It provides that the contents of the home are covered by the policy up to $100,000 and identifies none of the SFIP limitations. The parties agreed that the information was used by American Bankers for the purpose of calculating premiums.
The court held, "there can be no ambiguity between the SFIP and the McGair's Declaration page because the terms of the SFIP control . . . Thus, as a matter of law, any discrepancy between the SFIP and an accompanying Declarations Page must be resolved in favor of SFIP."
The McGairs purchased a flood insurance policy from American Bankers Insurance Company. The policy was part of the federal flood insurance program about which I've written previously. Under the program, private insurers issue and administer flood policies and claim payments are reimbursed by the Federal Emergency Management Agency (FEMA). FEMA provides a standard text for the policies, which are called Standard Flood Insurance Policies, or SFIPs.
The policy stated that it is provided "under the terms of the National Flood Insurance Act," and that it "cannot be changed nor can any of it provisions be waived without the express written consent of the Federal Insurance Administrator."
SFIPs limit coverage for personal property in basements. (According to the court in McGair, the limitation "serves to encourage construction that minimizes the risk of flooding (e.g., elevated foundations and buildings without basements.)" I'll have to suspend my disbelief on that one.)
In 2010 a flood damaged the McGairs' house and personal property in their basement. They sought compensation from American Bankers. American Bankers denied the claim, asserting the basement contents were not covered.
The McGairs sued, arguing that the Declarations Page created an ambiguity as to the scope of their policy. The Declarations Page indicated that the McGairs have a finished basement and that the contents of their home are located in the "basement and above." It provides that the contents of the home are covered by the policy up to $100,000 and identifies none of the SFIP limitations. The parties agreed that the information was used by American Bankers for the purpose of calculating premiums.
The court held, "there can be no ambiguity between the SFIP and the McGair's Declaration page because the terms of the SFIP control . . . Thus, as a matter of law, any discrepancy between the SFIP and an accompanying Declarations Page must be resolved in favor of SFIP."
Monday, September 3, 2012
First circuit rules on gradual detioration and faulty construction or maintenance exclusions
Insureds Paul Gargano and his wife sought coverage from Vigilant, who provided them with a homeowner's policy, for the cost to remedy failed staining on shingles on their house. The stain was peeling off the shingles.
Vigilant denied coverage on the basis of two policy exclusions. The first excluded coverage for "gradual deterioration . . . however caused, or any loss caused by . . . gradual deterioration." The second excluded losses resulting from faulty acts, errors or omissions in planning, construction or maintenance. "Construction" was defined as including materials and workmanship used for construction or repair.
In Gargano v. Vigilant Ins. Co., 2012 WL 3632442 (1st Cir.), the United States Court of Appeals for the First Circuit rejected the Garganos' argument that the policy exclusions were ambiguous. It held that the Garganos' argument that the deterioration of the stain was progressing "rapidly," not gradually, "did not rise above word play." "While, to be sure, 'gradual' has no mathematically fixed range, the pace of the detaching stain was a long way from a lightning bolt or a falling tree, and in calling it gradual the district court was drawing no fine line."
The court also held that in the faulty construction or maintenance exclusion, "'faulty' does not mean negligent or blameworthy on the part of a homeowner or his contractor, but simply tainted by imperfection."
Vigilant denied coverage on the basis of two policy exclusions. The first excluded coverage for "gradual deterioration . . . however caused, or any loss caused by . . . gradual deterioration." The second excluded losses resulting from faulty acts, errors or omissions in planning, construction or maintenance. "Construction" was defined as including materials and workmanship used for construction or repair.
In Gargano v. Vigilant Ins. Co., 2012 WL 3632442 (1st Cir.), the United States Court of Appeals for the First Circuit rejected the Garganos' argument that the policy exclusions were ambiguous. It held that the Garganos' argument that the deterioration of the stain was progressing "rapidly," not gradually, "did not rise above word play." "While, to be sure, 'gradual' has no mathematically fixed range, the pace of the detaching stain was a long way from a lightning bolt or a falling tree, and in calling it gradual the district court was drawing no fine line."
The court also held that in the faulty construction or maintenance exclusion, "'faulty' does not mean negligent or blameworthy on the part of a homeowner or his contractor, but simply tainted by imperfection."
Monday, August 20, 2012
Appeals Court holds that threats by landlord on premises is not invasion of the right of private occupancy of the premises
James Freedman leased property to Encarnacion and her husband. Encarnacion used the property for an auto body shop. When she fell behind on her rent Freedman made threatening and harassing phone calls to Encarnacion, including "threatening to have his wife come to the premises and beat her up." He also harassed and threatened her on the premises.
Encarnacion feared for her safety and began to suffer from anxiety attacks for which she received medical treatment.
Encarnacion filed suit against Freedman, seeking a restraining order and alleging negligent and intentional infliction of emotional distress and interference with business relations.
Freedman sought coverage from his commercial liability insurer, USL, asserting that the claim came within the policy's coverage for personal and advertising injury because it alleged invasion of the right of private occupancy of the premises. USL denied coverage.
In Freedman v. U.S. Liab. Ins. Co., 82 Mass App. Ct. 331 (2012), the court noted that in the underlying complaint Encarnacion did not complain of Freedman's appearance on her premises as landlord, or deny his right to be there. Therefore, the complaint was not for an invasion of the right of private occupancy.
Rather, the complaint was based on Freedman's harassing and threatening behavior while on the premises. Without going into details, the court held that the complaint came within the exclusion for actions made by or at the direction of the insured "with the knowledge that the act would violate the rights of another and would inflict 'personal and advertising injury.'"
Encarnacion feared for her safety and began to suffer from anxiety attacks for which she received medical treatment.
Encarnacion filed suit against Freedman, seeking a restraining order and alleging negligent and intentional infliction of emotional distress and interference with business relations.
Freedman sought coverage from his commercial liability insurer, USL, asserting that the claim came within the policy's coverage for personal and advertising injury because it alleged invasion of the right of private occupancy of the premises. USL denied coverage.
In Freedman v. U.S. Liab. Ins. Co., 82 Mass App. Ct. 331 (2012), the court noted that in the underlying complaint Encarnacion did not complain of Freedman's appearance on her premises as landlord, or deny his right to be there. Therefore, the complaint was not for an invasion of the right of private occupancy.
Rather, the complaint was based on Freedman's harassing and threatening behavior while on the premises. Without going into details, the court held that the complaint came within the exclusion for actions made by or at the direction of the insured "with the knowledge that the act would violate the rights of another and would inflict 'personal and advertising injury.'"
Thursday, August 9, 2012
Interested in another perspective . . .
. . . on insurance coverage issues?
Dennis Wall, a solo practitioner in Florida, has an excellent blog called Insurance Claims and Issues. He discusses both liability and medical insurance issues, and recent case law from around the country.
Dennis Wall, a solo practitioner in Florida, has an excellent blog called Insurance Claims and Issues. He discusses both liability and medical insurance issues, and recent case law from around the country.
Sunday, July 29, 2012
Privacy Insurance
Here's an article by Toby Merrill of ACE USA on everything you need to know about privacy insurance. He writes:
Privacy, as it relates to an individual’s personally identifiable information, such as Social Security numbers, credit card and healthcare data, has become a cause célèbre of federal and state regulators. Increases in the scope of privacy laws continue to fuel a rise in publicly reported corporate data breach incidents. A company that suffers a significant data breach not only confronts the possibility of great financial loss, it may also suffer irreversible reputational damage—fueling a need for privacy insurance.
Wednesday, July 25, 2012
SJC gives effect to anti-concurrent causation clause
Surabian Realty owns a professional office building in Foxborough, Massachusetts. In June, 2009, heavy rains fell in the area of the property. About thirty minutes into the storm, water stopped flowing down a parking lot drain that had become clogged with debris. As a result, rainwater collected in the parking lot and seeped under the door of the building, flooding and damaging the lower level.
Surabian sought coverage from its insurer, NGM. The policy contained an exclusion for loss or damage caused by water "regardless of any other cause or event that contributes concurrently or in any sequence to the loss." The phrase in quotes is called an anti-concurrent causation clause, and is often an issue in coverage for hurricane losses where a policy provides coverage for wind damage but excludes coverage for water damage.
The original water exclusion included surface water and water "that backs up or overflows from a sewer, drain or pump." The sewer, drain or pump clause, however, was replaced by a policy endorsement under which "the most we [the insurer] will pay for loss or damage caused by water that backs up or overflows from a sewer, drain or sump is $25,000."
NGM denied the claim because the damage resulted at least in part from surface water, which was excluded by the policy.
In Surabian Realty Co., Inc. v. NGM Ins. Co., __ N.E.2d __, 2012 WL 2819398, the Supreme Judicial Court of Massachusetts noted that "surface water" has been defined by case law as "waters from rain, melting snow, springs, or seepage, or floods that lie or flow on the surface of the earth and naturally spread over the ground but do not form part of a natural watercourse or lake." Rainwater that collects in a parking lot is surface water. Rainwater that collects on the ground is surface water even if, but for an obstruction, the water would have entered a drainage system.
The court reviewed extrajurisdictional cases that stand for the proposition that water must have "occupied" a pipe or drain in order to have backed up or overflowed from it.
The court held, "Construing these clauses in combination, we interpret the insurance contract, as amended by the indorsement, to exclude damage caused by flood waters that spread over the surface of the ground without having entered a drain, but to cover damage caused by water that backed up after entering a drain."
The parties agreed that the damage at issue was caused both by water that backed up after entering the drain and by water that, as a result of the blockage, never entered the drain. (I'm not an engineer, but I would question why water would have backed up from the drain. What was the force that pushed the water out of the drain? I would think -- again, I'm not an engineer-- that water that entered the drain would stay there, leaving no room for other water to enter it.)
Applying the anti-concurrent causation clause, the court held that because one cause of the damage was covered and another was excluded, there was no coverage for the loss under the policy.
Surabian sought coverage from its insurer, NGM. The policy contained an exclusion for loss or damage caused by water "regardless of any other cause or event that contributes concurrently or in any sequence to the loss." The phrase in quotes is called an anti-concurrent causation clause, and is often an issue in coverage for hurricane losses where a policy provides coverage for wind damage but excludes coverage for water damage.
The original water exclusion included surface water and water "that backs up or overflows from a sewer, drain or pump." The sewer, drain or pump clause, however, was replaced by a policy endorsement under which "the most we [the insurer] will pay for loss or damage caused by water that backs up or overflows from a sewer, drain or sump is $25,000."
NGM denied the claim because the damage resulted at least in part from surface water, which was excluded by the policy.
In Surabian Realty Co., Inc. v. NGM Ins. Co., __ N.E.2d __, 2012 WL 2819398, the Supreme Judicial Court of Massachusetts noted that "surface water" has been defined by case law as "waters from rain, melting snow, springs, or seepage, or floods that lie or flow on the surface of the earth and naturally spread over the ground but do not form part of a natural watercourse or lake." Rainwater that collects in a parking lot is surface water. Rainwater that collects on the ground is surface water even if, but for an obstruction, the water would have entered a drainage system.
The court reviewed extrajurisdictional cases that stand for the proposition that water must have "occupied" a pipe or drain in order to have backed up or overflowed from it.
The court held, "Construing these clauses in combination, we interpret the insurance contract, as amended by the indorsement, to exclude damage caused by flood waters that spread over the surface of the ground without having entered a drain, but to cover damage caused by water that backed up after entering a drain."
The parties agreed that the damage at issue was caused both by water that backed up after entering the drain and by water that, as a result of the blockage, never entered the drain. (I'm not an engineer, but I would question why water would have backed up from the drain. What was the force that pushed the water out of the drain? I would think -- again, I'm not an engineer-- that water that entered the drain would stay there, leaving no room for other water to enter it.)
Applying the anti-concurrent causation clause, the court held that because one cause of the damage was covered and another was excluded, there was no coverage for the loss under the policy.
Thursday, June 28, 2012
Mass. Appellate Division holds that preclusion of insurer's experts as sanction for nonproduction of documents violated due process
Advanced Spine Centers sued Commerce for PIP and 93A damages. In discovery it sought a number of documents, including reports written by Commerce's proposed experts in other cases. Commerce produced copies of reports of its proposed experts for the case at hand, but asserted that it had no other reports in its possession, custody or control.
Advance moved in limine to preclude the experts from testifying because Commerce had not provided the requested reports. The trial court allowed the motion.
In Advanced Spine Centers, Inc. v. Commerce Ins. Co., 2012 WL 2153943 (Mass. App. Div.), the Massachusetts Appellate Division overturned that ruling, holding that the sanction was too broad and violated the principles of due process.
Advance moved in limine to preclude the experts from testifying because Commerce had not provided the requested reports. The trial court allowed the motion.
In Advanced Spine Centers, Inc. v. Commerce Ins. Co., 2012 WL 2153943 (Mass. App. Div.), the Massachusetts Appellate Division overturned that ruling, holding that the sanction was too broad and violated the principles of due process.
Wednesday, June 20, 2012
Great article on exhaustion of underlying coverage
Michael Aylward, one of the premier insurance coverage attorneys in Massachusetts as well as an all-around nice guy, has published a comprehensive article on recent developments in the law relating to when underlying coverage is exhausted for the purpose of triggering excess coverage.
Saturday, June 16, 2012
Appeals Court holds insurer failed to use due diligence to contact insured when it did not use social media
Stephanie Cotto was injured in an automobile accident while riding as a passenger in a vehicle owned by George Luddy Chevrolet and driven by her friend, Luddy employee Julie Bertholdt. Bertholdt was an insured under a policy issued by Universal to Luddy.
Cotto filed suit. She obtained a default judgment as a result of Bertholdt's failure to answer interrogatories. Damages were assessed. Universal refused to satisfy the judgment, asserting that Bertholdt had breached her duty to cooperate.
Cotto filed an action to reach and apply coverage under the policy . The Superior Court held that Universal was entitled to disclaim coverage.
On appeal Cotto argued that Universal had failed to exercise due diligence in obtaining Bertholdt's cooperation.
In Cotto v. Universal Underwriters Ins. Co., 81 Mass. App. Ct. 1142, 2012 WL 2093331 (unpublished), the Massachusetts Appeals Court reversed.
The record on summary judgment showed that Universal had made various attempts to locate Bertholdt and seek her cooperation and that, at one point, she told insurance defense counsel that she was "not going to trial." The Appeals Court held those facts were insufficient to sustain a summary judgment verdict. "Especially given Bertholdt's youth and transient lifestyle, a trier of fact reasonably could conclude that due diligence required Universal to take further steps."
The court noted that after the reach and apply action was filed, Cotto testified at a deposition that she had been able to maintain contact with Bertholdt through text messages, MySpace, and Facebook. "In contrast, there is nothing in the record to indicate that such sites were consulted by Universal or its investigators, despite the importance of social media sites as centers of communication and sources of information. Nor does the record reflect that Universal considered Cotto, herself, as a source of information about Bertholdts' whereabouts."
Cotto filed suit. She obtained a default judgment as a result of Bertholdt's failure to answer interrogatories. Damages were assessed. Universal refused to satisfy the judgment, asserting that Bertholdt had breached her duty to cooperate.
Cotto filed an action to reach and apply coverage under the policy . The Superior Court held that Universal was entitled to disclaim coverage.
On appeal Cotto argued that Universal had failed to exercise due diligence in obtaining Bertholdt's cooperation.
In Cotto v. Universal Underwriters Ins. Co., 81 Mass. App. Ct. 1142, 2012 WL 2093331 (unpublished), the Massachusetts Appeals Court reversed.
The record on summary judgment showed that Universal had made various attempts to locate Bertholdt and seek her cooperation and that, at one point, she told insurance defense counsel that she was "not going to trial." The Appeals Court held those facts were insufficient to sustain a summary judgment verdict. "Especially given Bertholdt's youth and transient lifestyle, a trier of fact reasonably could conclude that due diligence required Universal to take further steps."
The court noted that after the reach and apply action was filed, Cotto testified at a deposition that she had been able to maintain contact with Bertholdt through text messages, MySpace, and Facebook. "In contrast, there is nothing in the record to indicate that such sites were consulted by Universal or its investigators, despite the importance of social media sites as centers of communication and sources of information. Nor does the record reflect that Universal considered Cotto, herself, as a source of information about Bertholdts' whereabouts."
Wednesday, May 30, 2012
Welcome back to the Cavalcade of Risk!
I am once again honored to be hosting the Cavalcade of Risk, a gathering of blog posts about various types of risk from around the web.
Life insurance
Russell Hutchinson at Chatswood Consulting has asked insurance companies to come up with old stock brochures and advertisements. In this post, check out the print ad “Could father be mother too?” as an insurer of yesterday tried to plug into the fears of at-home mums. While the mother's schedule speaks to a mythical past devoid of personal ambition or Valium, an updated version of the ad could work today. An occupational hazard for me as an attorney is that I am often confronted with the worst happening to others. As a result I make sure I have enough life insurance that if the worst happens in my family there will be enough money not just to make up for lost income, but for babysitters, housekeepers, and all the other sundry employees that would be necessary to make up for the things we do for our kids other than provide income to our family.
Personal risk
My Wealth Builder posts about a choice to treat high cholesterol with diet and exercise rather than drugs.
Perhaps he should try a coffee diet? Hank Stern at InsureBlog discusses a study showing that coffee drinkers live longer.
Free Money Finance offers advice on insurance and related topics. While much of the post is solid, I disagree with the advice about wills. If you care what will happen to your estate or if you want to prevent a big hassle for your closest relatives you should have a will, and you should have an attorney draft it.
Modest Money issues a reminder not to post personal information in blogs, as such posts can put you at risk for identity theft.
Investing
Here's a post for those of you who are already saving for retirement on a level that shows you’ll reach a comfortable amount of income-producing savings by the time you retire and do a good job of saving for holiday gifts, a vacation or two, and a new car every five years, and are saving for college for your kids, and have adequate insurance. For those of you who are still with us who are somehow nevertheless confused about how to save money, PT Money writes about strategies for long-term non-retirements savings.
At Risk Management Monitor, Emily Holbrook writes about The Good, The Bad, and The Ugly of the Facebook IPO.
The Financial Industry
Van Mayhall, at Insurance Regulatory Law, discusses arguments that credit default swaps are insurance transactions that should be regulated as such, and that “deregulation” of credit default swaps was a major cause of the financial crisis in the late 2000s.
Health Insurance
Jason Shifrin at Healthcare Economist writes in his post, "Heroes without Health Insurance" about about the sad phenomenon of U.S. veterans without health insurance.
Jay Norris at Colorado Health Insurance Insider writes about How Individual Health Insurance Measures Up. He writes that in Colorado the average premium for group coverage for a family in Colorado in 2010 was almost three times the national average for family coverage purchased in the individual market. He points out that the significant chunk of the premiums usually paid by the employer is not free money. If health insurance were less expensive, employee wages would likely be higher – the money has to come from somewhere, whether it’s paid directly from the employee in the form of payroll deduction, or by the employer. But people paying for their own insurance often gravitate towards lower-cost policies with higher out-of-pocket exposure in an effort to keep the premiums as low as possible.
While Jay points out the danger of low premium, high deductible plans, in my experience those plans can be excellent for someone who is aware of the risk. I had one of those plans for my family for a while. It cost a quarter of my current plan -- the cheapest legal plan now available in Massachusetts, which costs more than my mortgage -- and covered basically nothing under the first $10,000 of health care costs in a year. It worked for us because in Massachusetts we have had a law since the 1980's that people can switch health plans at will, regardless of preexisting conditions. That meant that we could accept the risk of a tragic sudden event -- a car accident requiring emergency room treatment, for example -- because we could switch to a regular plan with just a few days notice. We switched when my daughter needed to get her tonsils out, and then couldn't go back to our high deductible plan because the plan is no longer legal here.
Jaan Sidorov at Disease Management Care Blog describes some problematic similarities between Facebook and Accountable Care Organizations and asks if either entity has a business model that is built to last.
That's our carnival. The next one will be hosted by My Wealth Builder.
Life insurance
Russell Hutchinson at Chatswood Consulting has asked insurance companies to come up with old stock brochures and advertisements. In this post, check out the print ad “Could father be mother too?” as an insurer of yesterday tried to plug into the fears of at-home mums. While the mother's schedule speaks to a mythical past devoid of personal ambition or Valium, an updated version of the ad could work today. An occupational hazard for me as an attorney is that I am often confronted with the worst happening to others. As a result I make sure I have enough life insurance that if the worst happens in my family there will be enough money not just to make up for lost income, but for babysitters, housekeepers, and all the other sundry employees that would be necessary to make up for the things we do for our kids other than provide income to our family.
Personal risk
My Wealth Builder posts about a choice to treat high cholesterol with diet and exercise rather than drugs.
Perhaps he should try a coffee diet? Hank Stern at InsureBlog discusses a study showing that coffee drinkers live longer.
Free Money Finance offers advice on insurance and related topics. While much of the post is solid, I disagree with the advice about wills. If you care what will happen to your estate or if you want to prevent a big hassle for your closest relatives you should have a will, and you should have an attorney draft it.
Modest Money issues a reminder not to post personal information in blogs, as such posts can put you at risk for identity theft.
Investing
Here's a post for those of you who are already saving for retirement on a level that shows you’ll reach a comfortable amount of income-producing savings by the time you retire and do a good job of saving for holiday gifts, a vacation or two, and a new car every five years, and are saving for college for your kids, and have adequate insurance. For those of you who are still with us who are somehow nevertheless confused about how to save money, PT Money writes about strategies for long-term non-retirements savings.
At Risk Management Monitor, Emily Holbrook writes about The Good, The Bad, and The Ugly of the Facebook IPO.
The Financial Industry
Van Mayhall, at Insurance Regulatory Law, discusses arguments that credit default swaps are insurance transactions that should be regulated as such, and that “deregulation” of credit default swaps was a major cause of the financial crisis in the late 2000s.
Health Insurance
Jason Shifrin at Healthcare Economist writes in his post, "Heroes without Health Insurance" about about the sad phenomenon of U.S. veterans without health insurance.
Jay Norris at Colorado Health Insurance Insider writes about How Individual Health Insurance Measures Up. He writes that in Colorado the average premium for group coverage for a family in Colorado in 2010 was almost three times the national average for family coverage purchased in the individual market. He points out that the significant chunk of the premiums usually paid by the employer is not free money. If health insurance were less expensive, employee wages would likely be higher – the money has to come from somewhere, whether it’s paid directly from the employee in the form of payroll deduction, or by the employer. But people paying for their own insurance often gravitate towards lower-cost policies with higher out-of-pocket exposure in an effort to keep the premiums as low as possible.
While Jay points out the danger of low premium, high deductible plans, in my experience those plans can be excellent for someone who is aware of the risk. I had one of those plans for my family for a while. It cost a quarter of my current plan -- the cheapest legal plan now available in Massachusetts, which costs more than my mortgage -- and covered basically nothing under the first $10,000 of health care costs in a year. It worked for us because in Massachusetts we have had a law since the 1980's that people can switch health plans at will, regardless of preexisting conditions. That meant that we could accept the risk of a tragic sudden event -- a car accident requiring emergency room treatment, for example -- because we could switch to a regular plan with just a few days notice. We switched when my daughter needed to get her tonsils out, and then couldn't go back to our high deductible plan because the plan is no longer legal here.
Jaan Sidorov at Disease Management Care Blog describes some problematic similarities between Facebook and Accountable Care Organizations and asks if either entity has a business model that is built to last.
That's our carnival. The next one will be hosted by My Wealth Builder.
Wednesday, May 2, 2012
Coverage for innocent attorneys -- when their partners aren't so innocent
What happens when one lawyer at a law firm engages in fraudulent or criminal conduct, and his or her partners are sued even though they were unaware of the conduct? The American Bar Association Journal has an analysis of the insurance coverage issues here.
Tuesday, April 17, 2012
U.S. District Court holds that exclusion for earth movement does not apply to damages from burst pipe
A ceiling pipe in a warehouse owned by Espedito Realty burst. The break was not noticed for several days. The water pooled against a wall and eventually seeped down between the concrete floor and exterior wall. As a result, the sub-base below the concrete floor subsided, and the warehouse floor sank.
Espedito's insurer, National Fire Insurance Company of Hartford, paid some of the damages, but it refused to pay for the repair of the sunken floor. It asserted that an exclusion for "earth movement" applied.
The earth movement exclusion excludes coverage for damages arising from earthquake, landslide, mine subsidence, volcanic eruption, and "earth sinking, rising or shifting, including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty."
Espedito's experts opined that water from the broken pipe penetrated the ground underneath the floor, resulting in a subsidence of wasting away of the soil that caused the floor to sink.
National Fire argued that the cause of the earth movement was irrelevant.
In Espedito Realty, LLC v. Nat'l Fire Ins. Co. of Hartford, __ F. Supp. 2d __, 2012 WL 1014176 (D. Mass.) the court held that the exclusion does not apply:
Espedito's insurer, National Fire Insurance Company of Hartford, paid some of the damages, but it refused to pay for the repair of the sunken floor. It asserted that an exclusion for "earth movement" applied.
The earth movement exclusion excludes coverage for damages arising from earthquake, landslide, mine subsidence, volcanic eruption, and "earth sinking, rising or shifting, including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty."
Espedito's experts opined that water from the broken pipe penetrated the ground underneath the floor, resulting in a subsidence of wasting away of the soil that caused the floor to sink.
National Fire argued that the cause of the earth movement was irrelevant.
In Espedito Realty, LLC v. Nat'l Fire Ins. Co. of Hartford, __ F. Supp. 2d __, 2012 WL 1014176 (D. Mass.) the court held that the exclusion does not apply:
The unavoidable fact is that pipes burst rather frequently. It is a
rare property owner who has not dealt with the problem, or at least suffered
anxiety over the possibility, and it is hardly intuitive that an "earth
movement" exclusion would bar coverage for the homely situation where a pipe
bursts and a floor sinks as a result. No objectively reasonable insured
reading the policy would think so, especially when the only reference to the
impact of water is to "water flowing underground." If the policy truly
intended to cover this commonly recurring situation, it should have said
so.
Tuesday, April 10, 2012
Appeals Court holds that per person rather than aggregate limit determines how much underinsurance individuals can recover
Steven and Angelica Blackburn were in an auto accident. Angelica incurred medical bills and lost wages in excess of $241,000 and Steven incurred medical bills and lost wages in excess of $80,000.
The other vehicle was driven by Helen Vieira. Vieira's insurance policy with Travelers had a bodily injury limit of $50,000 per person and $100,000 per accident. It paid Angelica and Steven $50,000 each.
The Blackburns sought additional coverage from their own carrier,Commerce, with which they had underinsurance coverage of $100,000 per person and $300,000 per accident. They asserted that they were each entitled to $100,000, because they were jointly entitled to the difference between the $100,000 per accident coverage limit o f Vieira's coverage and the $300,000 per accident limit of their policy. Commerce asserted they were each entitled to only $50,000 (the $100,000 per person limit less the $50,000 they had already received.)
In Commerce Ins. Co. v. Blackburn, 81 Mass. App. Ct. 519 (2012), the court agreed with Commerce, citing policy language providing that recovery is subject to the per person limit.
My first thought was that under this analysis there is more than $100,000 of illusory coverage. If the accident were caused by someone with no insurance, the optional uninsured coverage would apply, not the underinsured coverage. In Massachusetts the statutory minimum per person coverage for injury to someone else is $20,000 (although I believe there are states that do not have minimum coverage). Therefore, the most either Steven or Angelica could recover under the underinsured coverage, if they are injured by someone insured in Massachusetts, is $80,000 (the $100,000 per person limit minus the $20,000 they would receive from the tortfeasor's insurance), or a combined total of $160,000. That would leave a gap of $140,000 in the per accident limit they could never get.
So I looked at the standard Massachusetts auto policy. The underinsurance coverage covers the named insureds, as well as, in certain circumstances, any household member and anyone occupying the insured's vehicle.
On a related note, I strongly recommend that everyone purchase as much underinsured and uninsured coverage as they can afford. Don't rely on other drivers to have adequate insurance to cover your loss if they injure you in an accident.
The other vehicle was driven by Helen Vieira. Vieira's insurance policy with Travelers had a bodily injury limit of $50,000 per person and $100,000 per accident. It paid Angelica and Steven $50,000 each.
The Blackburns sought additional coverage from their own carrier,Commerce, with which they had underinsurance coverage of $100,000 per person and $300,000 per accident. They asserted that they were each entitled to $100,000, because they were jointly entitled to the difference between the $100,000 per accident coverage limit o f Vieira's coverage and the $300,000 per accident limit of their policy. Commerce asserted they were each entitled to only $50,000 (the $100,000 per person limit less the $50,000 they had already received.)
In Commerce Ins. Co. v. Blackburn, 81 Mass. App. Ct. 519 (2012), the court agreed with Commerce, citing policy language providing that recovery is subject to the per person limit.
My first thought was that under this analysis there is more than $100,000 of illusory coverage. If the accident were caused by someone with no insurance, the optional uninsured coverage would apply, not the underinsured coverage. In Massachusetts the statutory minimum per person coverage for injury to someone else is $20,000 (although I believe there are states that do not have minimum coverage). Therefore, the most either Steven or Angelica could recover under the underinsured coverage, if they are injured by someone insured in Massachusetts, is $80,000 (the $100,000 per person limit minus the $20,000 they would receive from the tortfeasor's insurance), or a combined total of $160,000. That would leave a gap of $140,000 in the per accident limit they could never get.
So I looked at the standard Massachusetts auto policy. The underinsurance coverage covers the named insureds, as well as, in certain circumstances, any household member and anyone occupying the insured's vehicle.
On a related note, I strongly recommend that everyone purchase as much underinsured and uninsured coverage as they can afford. Don't rely on other drivers to have adequate insurance to cover your loss if they injure you in an accident.
Thursday, April 5, 2012
Appeals Court holds insurer must defend additional insured where primary insured not named in complaint
A Greyhound bus was involved in an accident resulting in five fatalities and numerous injuries. Unicco was responsible by contract for tire maintenance on the bus.
Suits were filed against Greyhound alleging that Greyhound negligently inspected and maintained tires on the bus. One of the suits named Unicco as a defendant, and Greyhound brought third-party suits against Unicco where it was not named.
Unicco had a GL policy from Travelers under which Greyhound was an additional insured "only with respect to liability arising out of [Unicco's] ongoing operations performed for [Greyhound]" and, in a different endorsement, except with respect to "liability arising out of the independent acts or omissions of [Greyhound]."
It was undisputed that Greyhound was entitled to coverage under the ongoing operations endorsement. Travelers declined to defend or indemnify Greyhound, although it is not clear why.
In Greyhound Lines, Inc. v. Travelers Property Casualty Co. of Am., 2012 WL 987515 (Mass. App. Ct.) (unpublished), the court held that Greyhound is also entitled to coverage under the second endorsement. The complaint in the suit naming Unicco alleged that Unicco's negligent performance under the tire maintenance agreement caused or contributed to the accident.
In what is either a typo or very poor phrasing, the court stated, "the duty to defend is not . . . an all or nothing proposition." Luckily the court went on to explain that the duty to defend is, in fact, an all or nothing proposition (at least in Massachusetts). "An insurer's broad duty to defend generally extends to all counts of a complaint, even those not specifically covered by the policy." Since at least some of the counts were covered, Travelers had a duty to defend Greyhound for all counts.
The court also held that Travelers had a duty to defend Greyhound in the lawsuits in which Unicco was not named, because of "the facts reasonably known to Travelers from the lawsuits in which Unicco is named as a direct defendant and is alleged to be liable for the accident, and because similar claims for negligence with respect to the maintenance and the inspection of tires are alleged against Greyhound."
Suits were filed against Greyhound alleging that Greyhound negligently inspected and maintained tires on the bus. One of the suits named Unicco as a defendant, and Greyhound brought third-party suits against Unicco where it was not named.
Unicco had a GL policy from Travelers under which Greyhound was an additional insured "only with respect to liability arising out of [Unicco's] ongoing operations performed for [Greyhound]" and, in a different endorsement, except with respect to "liability arising out of the independent acts or omissions of [Greyhound]."
It was undisputed that Greyhound was entitled to coverage under the ongoing operations endorsement. Travelers declined to defend or indemnify Greyhound, although it is not clear why.
In Greyhound Lines, Inc. v. Travelers Property Casualty Co. of Am., 2012 WL 987515 (Mass. App. Ct.) (unpublished), the court held that Greyhound is also entitled to coverage under the second endorsement. The complaint in the suit naming Unicco alleged that Unicco's negligent performance under the tire maintenance agreement caused or contributed to the accident.
In what is either a typo or very poor phrasing, the court stated, "the duty to defend is not . . . an all or nothing proposition." Luckily the court went on to explain that the duty to defend is, in fact, an all or nothing proposition (at least in Massachusetts). "An insurer's broad duty to defend generally extends to all counts of a complaint, even those not specifically covered by the policy." Since at least some of the counts were covered, Travelers had a duty to defend Greyhound for all counts.
The court also held that Travelers had a duty to defend Greyhound in the lawsuits in which Unicco was not named, because of "the facts reasonably known to Travelers from the lawsuits in which Unicco is named as a direct defendant and is alleged to be liable for the accident, and because similar claims for negligence with respect to the maintenance and the inspection of tires are alleged against Greyhound."
Wednesday, March 28, 2012
What my 7 year old daughter says about insurance
I think it is good to have insurance in case of a hurricane or tornado, or someone robs your house.
I couldn't have said it bettery myself!
I couldn't have said it bettery myself!
Friday, March 2, 2012
The insurance industry is doing just fine, apparently
Van Mayhall, consistently one of the most interesting bloggers on big-picture insurance issues (and, no, I'm not trying to damn with faint praise), has done it again. Over at Insurance Regulatory Law he has written this post asserting that in contradiction to public perception the insurance industry has suffered few losses in recent years.
Friday, February 24, 2012
Superior Court rules that insurer was not required to continue relationship with agent begun under CAR
In Calianos v. Commerce Ins. Co., 2012 WL 414464 (Mass. Super.), Judge Fabricant of the Massachusetts Superior Court held than an auto insurer was not liable to an agent when it terminated high risk policies assigned to it under the Commonwealth Automobile Reinsurers (CAR) program, when CAR was replaced by Massachusetts Automobile Insurance Plan (MAIP).
Under the old CAR program, all insurers who wrote auto insurance policies in Massachusetts were required to accept all high-risk applicants for insurance, but they had the option of merely administering the policies and ceding the profits and losses from such policies to the residual market.
An insurance agent who was unable to obtain a voluntary contract with an insurer could apply to CAR to be assigned as an Exclusive Representative Producer, or ERP. CAR appointed each ERP to an insurer.
The Commissioner of Insurance replaced CAR with MAIP, which I discussed in these posts (hit the link and then scroll down). Under MAIP, insurers are assigned, based on their market share, policies issued to high risk drivers, and are required to absorb any losses from those policies. MAIP became effective in 2008.
Under MAIP, agents are no longer assigned on an involuntary basis to insurers. Only agents who are licensed as Assigned Risk Producers, or ARP's, service the high-risk market.
While CAR was still in effect in 2006, CAR assigned insurance agent Jason Calianos as an ERP to Commerce.
In January, 2009, after MAIP replaced CAR, Commerce informed Calianos that he would no longer have authority to solicit or bind new policies and that Commerce would non-renew his existing policies. Commerce then issued notices of nonrenewal to Calianos's customers.
Calianos sued Commerce, alleging that Commerce had amended or terminated its agreement with him without the requisite notice, and that it declined to renew his customers' policies, depriving him of commissions.
The court held:
Under the old CAR program, all insurers who wrote auto insurance policies in Massachusetts were required to accept all high-risk applicants for insurance, but they had the option of merely administering the policies and ceding the profits and losses from such policies to the residual market.
An insurance agent who was unable to obtain a voluntary contract with an insurer could apply to CAR to be assigned as an Exclusive Representative Producer, or ERP. CAR appointed each ERP to an insurer.
The Commissioner of Insurance replaced CAR with MAIP, which I discussed in these posts (hit the link and then scroll down). Under MAIP, insurers are assigned, based on their market share, policies issued to high risk drivers, and are required to absorb any losses from those policies. MAIP became effective in 2008.
Under MAIP, agents are no longer assigned on an involuntary basis to insurers. Only agents who are licensed as Assigned Risk Producers, or ARP's, service the high-risk market.
While CAR was still in effect in 2006, CAR assigned insurance agent Jason Calianos as an ERP to Commerce.
In January, 2009, after MAIP replaced CAR, Commerce informed Calianos that he would no longer have authority to solicit or bind new policies and that Commerce would non-renew his existing policies. Commerce then issued notices of nonrenewal to Calianos's customers.
Calianos sued Commerce, alleging that Commerce had amended or terminated its agreement with him without the requisite notice, and that it declined to renew his customers' policies, depriving him of commissions.
The court held:
- Commerce did not breach Calianos's contract. His CAR contract terminated when CAR was replaced by MAIP.
- Commerce was not required by MAIP to continue its relationship with Calianos.
- Commerce did not act in bad faith when it did not renew Calianos's policies on a voluntary basis, because it was not required to do so and never had a voluntary relationship with him.
- Commerce was not liable for intentional interference with contractual relationships, because Commerce had no contractual duty to renew the CAR policies.
Thursday, February 16, 2012
Sunday, February 12, 2012
In huge victory for insureds, SJC holds that measure of multiple damages in 93A claim is underlying judgment
On Friday, in a case which has been closely watched by those on both sides of the insurer/insured divide (and by those of us who straddle the divide), the SJC has overturned in no uncertain terms a ruling by the Massachusetts Appeals Court regarding calculation of multiple damages in a 93A claim against an insurer for unfair settlement practices. The Appeals Court had held that the multiple damages in a 93A claim where the underlying tort claim has gone to judgment are calculated by the loss of use of settlement funds -- in other words, interest from the time a reasonable settlement offer should have been made until it actually was made. I was shocked by the Appeals Court decision when it came out, because it contradicted the plain language of Mass. Gen. Laws ch. 93A s. 2, which states that multiple damages are based on the underlying judgment.
The SJC also held that to recover under ch. 93A the insureds do not have to prove that they would have accepted a reasonable settlement offer had one been made.
In January, 2002, Marcia Rhodes received catastrophic injuries including permanent paraplegia when a tractor trailer rear-ended her car. She and her family sued the truck driver, his employer, and the company to which he had been assigned by his employer.
At trial in September, 2004, the plaintiffs received a trial judgment of approximately $11.3 million. During the appeal process the plaintiffs settled the claim with the defendants' insurers.
Before settlement the plaintiffs filed a 93A claim against the insurers for failing to enter into a prompt, fair, and equitable settlement.
The trial court ruled on the 93A claim that excess carrier AIGDC had violated ch. 93A, but that the violation did not cause the plaintiffs any damages prior to trial because they would not have accepted even a timely reasonable offer prior to trial. The trial court also held that the 93A damages for AIGDC's failure to settle immediately after trial were the loss of use of the settlement funds.
On appeal, the Massachusetts Appeals Court held that the plaintiffs suffered damages as a result of both AIGDC's pre- and post-trial conduct. Like the trial court, it held that the measure of damages was the loss of use of the settlement funds.
On Friday, February 10, 2012, the SJC reversed. In Rhodes v. AIG Domestic Claims, Inc., 2012 WL 401034 (Mass.), the court first held that the plaintiffs are not required to prove that they would have accepted a prompt, reasonable settlement offer if the insurer had made such an offer.
It then held that the measure of damages is the underlying judgment is the plaintiffs' tort action, not loss of use of settlement funds.
The basis for this decision is Mass. Gen. Laws ch. 93A, s. 2, which states, "For the purposes of this chapter, the amount of actual damages to be multiplied by the court shall be the amount of the judgment on all claims arising out of the same and underlying transaction or occurrence."
The SJC also held that to recover under ch. 93A the insureds do not have to prove that they would have accepted a reasonable settlement offer had one been made.
In January, 2002, Marcia Rhodes received catastrophic injuries including permanent paraplegia when a tractor trailer rear-ended her car. She and her family sued the truck driver, his employer, and the company to which he had been assigned by his employer.
At trial in September, 2004, the plaintiffs received a trial judgment of approximately $11.3 million. During the appeal process the plaintiffs settled the claim with the defendants' insurers.
Before settlement the plaintiffs filed a 93A claim against the insurers for failing to enter into a prompt, fair, and equitable settlement.
The trial court ruled on the 93A claim that excess carrier AIGDC had violated ch. 93A, but that the violation did not cause the plaintiffs any damages prior to trial because they would not have accepted even a timely reasonable offer prior to trial. The trial court also held that the 93A damages for AIGDC's failure to settle immediately after trial were the loss of use of the settlement funds.
On appeal, the Massachusetts Appeals Court held that the plaintiffs suffered damages as a result of both AIGDC's pre- and post-trial conduct. Like the trial court, it held that the measure of damages was the loss of use of the settlement funds.
On Friday, February 10, 2012, the SJC reversed. In Rhodes v. AIG Domestic Claims, Inc., 2012 WL 401034 (Mass.), the court first held that the plaintiffs are not required to prove that they would have accepted a prompt, reasonable settlement offer if the insurer had made such an offer.
It then held that the measure of damages is the underlying judgment is the plaintiffs' tort action, not loss of use of settlement funds.
The basis for this decision is Mass. Gen. Laws ch. 93A, s. 2, which states, "For the purposes of this chapter, the amount of actual damages to be multiplied by the court shall be the amount of the judgment on all claims arising out of the same and underlying transaction or occurrence."
Thursday, February 9, 2012
Fantastic resource on professional liability insurance
The Washington, D.C. firm of Jackson & Campbell has posted a 50-state review of professional liability insurance coverage. Click here for the link.
Tuesday, February 7, 2012
First Circuit holds no coverage for breach of contract damages
In Lopez & Medina Corp. v. Marsh USA, Inc., __ F.3d __, 2012 WL 229856 (1st. Cir.), the First Circuit Court of Appeals held that coverage under a liability policy does not extend to breach of contract damages.
The insured argued that the policy covered breach of contract damages because in it the insurer agreed to pay "all sums which the insured shall become legally obligated to pay as damages."
The court, which was deciding a case on appeal for the United States District Court for the District of Puerto Rico, noted that there was no Puerto Rican case law on point. It based its holding on the unanimous opinions of other jurisdictions as well as insurance treatises.
The insured argued that the policy covered breach of contract damages because in it the insurer agreed to pay "all sums which the insured shall become legally obligated to pay as damages."
The court, which was deciding a case on appeal for the United States District Court for the District of Puerto Rico, noted that there was no Puerto Rican case law on point. It based its holding on the unanimous opinions of other jurisdictions as well as insurance treatises.
Thursday, February 2, 2012
Appeals Court holds insurer not liable for misrepresentations of attorney representing it in subrogation action
During a delivery of heating oil to the residence of Elaine Sandman a delivery line burst, causing her basement to flood with oil. Sandman's insurer, Quincy Mutual, agreed to cover the cost of cleaning the spill, but the policy excluded coverage for damage to Sandman's personal property.
Quincy Mutual hired an attorney to bring a subrogation action against the oil delivery company. According to Sandman's complaint, over the course of five years the attorney consistently led her to believe that he represented her interests as well as those of Quincy Mutual and that he was seeking to recover her damages for loss to personal property.
Quincy Mutual's subrogation claim settled in the spring of 2009. At that time the attorney informed Sandman that he could not help her with her own claim because of a conflict of interest as Quincy Mutual's attorney. Sandmans' claims were barred by that time by the statute of limitations.
Sandman sued the attorney and Quincy Mutual. Quincy Mutual moved to dismiss, on the ground that it was not vicariously liable to Sandman for the attorney's malpractice and misrepresentations.
In Sandman v. Quincy Mut. Fire Ins.Co., 81 Mass. App. Ct. 188 (2012), Judge Grasso held that as a matter of law Quincy Mutual cannot be vicariously liable for the representations and professional negligence of the attorney, "because as an attorney and an independent professional he has a nondelegable duty of care to Sandman." Neither an insurer nor any other third party may exercise control over the independent judgment in the representation of a client.
Judge Brown dissented. Whereas Judge Grasso analyzed the issue from the perspective of the attorney's attorney-client relationship with Sandman, Judge Brown analyzed the issue from the perspective of the attorney's attorney-client relationship with Quincy Mutual. He wrote that the allegations of the complaint were sufficient to establish that the attorney may have had actual authority to act on behalf of Quincy Mutual. He also noted that the acts of an attorney in the conduct of litigation are binding upon the client. He distinguished cases discussing liability of an insurer for counsel it hired to represent an insured, because in that situation the attorney, while paid by the insurer, does not represent the insurer; in the present situation the attorney represented Quincy Mutual.
Quincy Mutual hired an attorney to bring a subrogation action against the oil delivery company. According to Sandman's complaint, over the course of five years the attorney consistently led her to believe that he represented her interests as well as those of Quincy Mutual and that he was seeking to recover her damages for loss to personal property.
Quincy Mutual's subrogation claim settled in the spring of 2009. At that time the attorney informed Sandman that he could not help her with her own claim because of a conflict of interest as Quincy Mutual's attorney. Sandmans' claims were barred by that time by the statute of limitations.
Sandman sued the attorney and Quincy Mutual. Quincy Mutual moved to dismiss, on the ground that it was not vicariously liable to Sandman for the attorney's malpractice and misrepresentations.
In Sandman v. Quincy Mut. Fire Ins.Co., 81 Mass. App. Ct. 188 (2012), Judge Grasso held that as a matter of law Quincy Mutual cannot be vicariously liable for the representations and professional negligence of the attorney, "because as an attorney and an independent professional he has a nondelegable duty of care to Sandman." Neither an insurer nor any other third party may exercise control over the independent judgment in the representation of a client.
Judge Brown dissented. Whereas Judge Grasso analyzed the issue from the perspective of the attorney's attorney-client relationship with Sandman, Judge Brown analyzed the issue from the perspective of the attorney's attorney-client relationship with Quincy Mutual. He wrote that the allegations of the complaint were sufficient to establish that the attorney may have had actual authority to act on behalf of Quincy Mutual. He also noted that the acts of an attorney in the conduct of litigation are binding upon the client. He distinguished cases discussing liability of an insurer for counsel it hired to represent an insured, because in that situation the attorney, while paid by the insurer, does not represent the insurer; in the present situation the attorney represented Quincy Mutual.
Monday, January 23, 2012
A blog every insurance agent in Massachusetts should be reading
My colleagues over at ForbesGallagher have a very informative and frequently updated blog, Agency Checklists, aimed at Massachusetts insurance agents. One of the recent articles discusses upcoming changes to the statutorily-mandated commissions that auto insurers pay to agents. Another article describes a recent requirement that homeowner's insurers offer coverage for oil leaks in some circumstances.
Wednesday, January 11, 2012
Upcoming changes to insurance law
Van Mayhall at Insurance Regulatory Law has posted an informative article on upcoming federal and state changes to liability insurance regulations.
Wednesday, January 4, 2012
U.S. District Court finds coverage for Pring-Wilson under umbrella policy but not homeowner's policy
I have posted previously here and here about the declaratory judgment action over insurance coverage issues in the civil wrongful death case against Alexander Pring-Wilson. Pring-Wilson was a Harvard graduate student who was in a drunken street fight with Michael Colono, resulting in Colono's death. Pring-Wilson pleaded guilty to involuntary manslaughter. Colono's estate filed a civil wrongful death suit against him, resulting in a judgment of $260,000 which is currently under appeal.
Pring-Wilson sought coverage for the wrongful death suit under a homeowner's policy issued by Fire Insurance and an umbrella policy issued by Farmers Insurance to his mother, Cynthia Pring, in Colorado. The insurers filed a declaratory judgment action in the United States District Court for the District of Massachusetts.
After a bench trial, in Fire Ins. Exchange v. Pring-Wilson, __ F. Supp. 2d __, 2011 WL 6396518, Judge Saris ruled that under Colorado law the Fire Insurance policy is not required to indemnify Pring-Wilson, but the Farmers policy must indemnify him.
The Fire Insurance policy defined "insured" as a "permanent resident" of the policyholder's household under the age of 21 or a relative of the policyholder. The Farmers policy covers "the following residents of your household . . . (1) your relatives." "Relative" is defined in the policy as "persons living with you who are related to you by blood, marriage, or adoption."
The judge had ruled earlier that under the Fire Insurance policy Pring-Wilson was a permanent resident of his mother's household.
Farmers argued that Pring-Wilson is not covered under the umbrella policy because he was not "living with" his mother, the policyholder.
The court disagreed, "Pring-Wilson was not physically living with his mother on the date of the accident because he was away at school, but he was living with her in the sense that his school addresses were all temporary and he was a resident of [his mother's] home. He was not yet formally engaged and planned to move home within weeks."
The court held that under Colorado law coverage was excluded in the Fire Insurance policy by an exclusion for damages that resulted "for any occurrence caused by an intentional act of any insured where the results are reasonably foreseeable."
The Farmers policy did not contain that exclusion. Rather, it excluded coverage for damages that are "expected or intended from the standpoint of the insured." The court held that Farmers failed to establish that Pring-Wilson subjectively expected or intended any harm to Colono.
The court finally held that the umbrella policy would drop down to cover the loss where the primary policy did not provide coverage.
Pring-Wilson sought coverage for the wrongful death suit under a homeowner's policy issued by Fire Insurance and an umbrella policy issued by Farmers Insurance to his mother, Cynthia Pring, in Colorado. The insurers filed a declaratory judgment action in the United States District Court for the District of Massachusetts.
After a bench trial, in Fire Ins. Exchange v. Pring-Wilson, __ F. Supp. 2d __, 2011 WL 6396518, Judge Saris ruled that under Colorado law the Fire Insurance policy is not required to indemnify Pring-Wilson, but the Farmers policy must indemnify him.
The Fire Insurance policy defined "insured" as a "permanent resident" of the policyholder's household under the age of 21 or a relative of the policyholder. The Farmers policy covers "the following residents of your household . . . (1) your relatives." "Relative" is defined in the policy as "persons living with you who are related to you by blood, marriage, or adoption."
The judge had ruled earlier that under the Fire Insurance policy Pring-Wilson was a permanent resident of his mother's household.
Farmers argued that Pring-Wilson is not covered under the umbrella policy because he was not "living with" his mother, the policyholder.
The court disagreed, "Pring-Wilson was not physically living with his mother on the date of the accident because he was away at school, but he was living with her in the sense that his school addresses were all temporary and he was a resident of [his mother's] home. He was not yet formally engaged and planned to move home within weeks."
The court held that under Colorado law coverage was excluded in the Fire Insurance policy by an exclusion for damages that resulted "for any occurrence caused by an intentional act of any insured where the results are reasonably foreseeable."
The Farmers policy did not contain that exclusion. Rather, it excluded coverage for damages that are "expected or intended from the standpoint of the insured." The court held that Farmers failed to establish that Pring-Wilson subjectively expected or intended any harm to Colono.
The court finally held that the umbrella policy would drop down to cover the loss where the primary policy did not provide coverage.
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