Friday, September 27, 2013

Comprehensive article on terrorism insurance

I posted here my thoughts on how the Terrorism Risk Insurance Act (TRIA) should be amended rather than simply readopted as is next year. 

The Insurance Information Institute has a comprehensive article on the past, present, and proposed future of TRIA here

Wednesday, September 25, 2013

US District Court holds that bond coverage does not increase policy limit

Katie Graf won a lawsuit against a restaurant called Torcia.  Graf had alleged that she was injured at the restaurant.  The judgment was for $500,000 plus prejudgment interest of $111,124.26.

Graf attached the restaurant's liquor license in the amount of $115,000 to secure payment of the prejudgment interest.

Torcia requested that its insurer, Hospitality Mutual Insurance Company, pay the cost of the bond to discharge the attachment.  The Hospitality policy had a per person limit of $500,000, and defined "damages" as including prejudgment interest.  Hospitality asserted that the prejudgment interest was therefore outside the policy limit and declined to pay the bond. 

Under the policy Hospitality agreed to pay the cost of bonds to release attachments, "but only for bond amounts within the applicable limit of insurance." 

In Graf v. Hospitality Mutual Ins. Co., 2013 WL 3878691 (D. Mass.), the court held that the policy was susceptible to only one reasonable interpretation -- "that it did not require [Hospitality] to pay prejudgment interest directly or the cost of the bond." 

Torcia had assigned its rights against Hospitality to Graf in exchange for discharge of the attachment.  Graf argued that Hospitality should pay the cost of the bond because the amount of the bond itself was within the policy limit.  The court disagreed, holding that the bond was over the policy limit because Hospitality had already paid the policy limit.

Graf next argued that there was a separate $500,000 limit for bonds.  Reading the policy as a whole, the court disagreed. 

I dislike limits that includes prejudgment interest, just as I dislike limits that include attorney's fees.  Depending on the case, insurers and insurance defense counsel have anywhere between some and a  great deal of control over how long a case will take before resolution, just as they have between some and a great deal of control over attorney's fees.  The limits are, however, a reality.

The takeaway:  When choosing your policy limits, whether or not the limits include prejudgment interest is a factor you should consider.  It is not unusual for a case to take several years to get to trial.  At the prejudgment interest rate of 12 percent in Massachusetts, the verdict of a case that takes five years will be increased by 60 percent because of prejudgment interest. 

Sunday, September 15, 2013

US District Court discusses New York law on policy cancellation by premium finance agency

Troy Sutler was injured when he was hit by a forklift.  The forklift was driven by an employee of NYCP.  Sutler sued NYCP and obtained a judgment against it.  He then sued Redland Insurance for payment.

A few months before the accident NYCP had purchased a general liability policy from Redland.  It paid for the policy with a loan from BIC.  The loan agreement specified that as long as NYCP owed BIC any money, BIC would have a power of attorney to cancel the Redland insurance policy on NYCP's behalf, and thereby obtain a partial refund. 

Two months after the companies entered into the loan agreement, and before the forklift accident, NYCP failed to make its monthly payment to BIC.  BIC cancelled the policy.

Redland sent NYCP a notice that its insurance had been cancelled, and that it could avoid the cancellation by paying the total premium due within fifteen days.  NYCP did not do so. 

After the accident, BIC informed Redland that it had received payment from NYCP and asked Redland to retroactively reinstate NYCP's policy. Redland did not do so.

Sutler sued Redland on the ground that it is liable as NYCP's insurer for the judgment he obtained.

In Sutler v. Redland Ins. Co., 2013 WL 3732873 (D. Mass. 2013), Sutler argued that the cancellation of the policy was invalid because NYCP did not receive notice at least ten days (or fifteen; the decision is inconsistent) before its policy was cancelled as required by the terms of the policy.

The court rejected the argument, because Redland did not cancel the policy; BIC cancelled the policy under its power of attorney from NYCP.  The insurance policy allows NYCP to cancel upon advance written notice. 

The court also held that the cancellation complied with governing New York statute.  That statute allows a premium finance agency such as BIC to cancel an insurance contract if it first gives the insured party ten days' written notice. 

Sutler argued that BIC's cancellation was ineffective because BIC sent the notice of cancellation on May 22, 2007, with an effective date of May 29, 2007, only seven days.  But, the court held, Sutler was confusing a notice of intent to cancel with the notice of cancellation.  BIC sent its notice of intent to cancel on May 8, 2007, fourteen days before it sent the notice of cancellation.  That fourteen-day period was sufficient under New York statute.