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 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.

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. 

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. 

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.)

Saturday, October 6, 2012

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.