Friday, April 7, 2023

JDSupra discusses the effect on insurance claims of the tort reform measures that just became law in Florida

 

Although in this blog I generally stick to Massachusetts topics, this article from JDSupra on the new Florida tort reform measures should be of interest to anyone who practices in the insurance bad faith field.  

Here's one of my posts from a few years ago that touches on insurance litigation in Florida.  

Wednesday, February 1, 2023

What ChatGPT says about exclusions in insurance policies, and why I'm not worried the app will put me out of a job any time soon

 

So many people are talking about ChatGPT -- the artificial intelligence content creator -- that awareness of it has trickled down even to us attorneys, well-known to be late adopters of all technology.  I thought I'd give it a try.  I signed up for ChatGPT (which took several attempts, none of which were my fault, and included one message that I would have to wait because traffic was heavy -- not a great sign for the cuttingest-edge tech), and I input this question:

In Massachusetts what should you do if your insurance carrier says that an exclusion applies to a claim against you?

ChatGPT generated this response:

If your insurance carrier says that an exclusion applies to a claim against you in Massachusetts, you have several options:

1.     Review the policy: Make sure you understand the specific exclusion and its terms. You may want to review the policy documents and any relevant laws or regulations.

2.     Negotiate with the other party: If you believe that the exclusion should not apply, you may try to negotiate with the other party to reach a settlement.

3.     Hire an attorney: If you are unable to resolve the issue with the other party, you may want to consider hiring an attorney who specializes in insurance law. An attorney can help you understand your rights and options and represent you in negotiations or in court.

4.     File a complaint with the Massachusetts Division of Insurance: If you are dissatisfied with the insurance company's decision, you may file a complaint with the Massachusetts Division of Insurance. This agency can investigate the matter and take appropriate action, such as ordering the insurance company to pay a claim or imposing fines.

If the exclusion is valid and the claim is not covered under your policy, you may be personally responsible for paying any damages or legal costs associated with the claim. In this situation, it's important to consider your options and to consult with an attorney if necessary.

While this response has some okay isolated statements, overall I would rate it: malpractice.  I’ll take it point by point:

1.     Review the policy: Make sure you understand the specific exclusion and its terms. You may want to review the policy documents and any relevant laws or regulations.

This may work for the simplest exclusions, but even then I wouldn’t bet on it.  If you have a homeowner’s policy that excludes – let me make up a good one here – “damages arising out of the ownership of dinosaurs,” and you have a pet dinosaur that eats your plumbing, resulting in water damage, it might seem obvious that the exclusion excludes coverage. Right?

Well, not necessarily.  What part of the policy lists the exclusion?  If the exclusion is within your property coverage – which covers damage to your own house – it might apply.  But if it’s in your liability coverage – which covers injuries or property damage you cause to someone else – it might not apply. 

Even if the exclusion is in the relevant portion of the policy, are their any exceptions to the exclusion?  Or any limitations to it?  Or has it been removed altogether?  Your policy may have thirty different forms and endorsements, and language affecting the exclusion may be in a different endorsement than the exclusion itself.

And what about the courts?  Have they interpreted the exclusion?  What have they concluded?

If you have been told that an exclusion applies, don’t try to figure it out yourself.  Consult an attorney who specializes in insurance coverage issues. 

2.   Negotiate with the other party: If you believe that the exclusion should not apply, you may try to negotiate with the other party to reach a settlement.

WRONG.  This would only be correct if the “other party” is the insurance company – but typically the other party is the party who is suing you, for which you are seeking insurance coverage.  If you believe the exclusion does not apply, you need to deal with the insurance company on coverage, not settle with the other party.  Again, hire an attorney.

3.  Hire an attorney: If you are unable to resolve the issue with the other party, you may want to consider hiring an attorney who specializes in insurance law. An attorney can help you understand your rights and options and represent you in negotiations or in court.

This is good advice, except for the order.  Hire an attorney first. 

4.     File a complaint with the Massachusetts Division of Insurance: If you are dissatisfied with the insurance company's decision, you may file a complaint with the Massachusetts Division of Insurance. This agency can investigate the matter and take appropriate action, such as ordering the insurance company to pay a claim or imposing fines.

This is technically true.  I have known people to have good results requesting the assistance of the Division of Insurance, more often with health insurance than with liability insurance.  If you file a complaint with the Division and it catches the attention of a staffer who decides that they agree you have been wronged, they may make a phone call or send a letter that will intimidate the insurer into backing down.  But the Division will not get involved in a dispute over the meaning of an insurance exclusion that is best left to the  courts.  Also, be aware that the Division will not work with a policyholder who is represented by counsel.  You can go to the Division and later, if you’re not satisfied with the results there, hire an attorney.  But you can’t do it the other way around. 

If the exclusion is valid and the claim is not covered under your policy, you may be personally responsible for paying any damages or legal costs associated with the claim. In this situation, it's important to consider your options and to consult with an attorney if necessary.

Agreed. 

My verdict:  The results from ChatGPT are significantly worse than you would get from a Google search -- which will generally lead you to coverage attorneys -- and may cause you to lose rights under your policy or pay a claim that should be covered by insurance.  




Friday, January 6, 2023

SJC holds that under plain language of pollution policy there is no coverage for costs incurred to prevent business interruption after pollution event

 

Ken's Foods, Inc. operates a manufacturing facility in Georgia.  In 2018 its wastewater treatment system malfunctioned and wastewater flowed into a Georgia tributary.  Ken's Foods cleaned up and contained the pollution, incurring about $1 million in costs.

Ken's Foods also implemented a temporary wastewater treatment system that allowed it to continue its operations without interruption.  It spent over $2 million on these measures, including governmental fines, which allowed it to avoid a suspension of operations that otherwise would have cost it over $10 million per month in expenses and lost profits.  

Ken's Foods sought coverage under a pollution liability policy issued to it by Steadfast Insurance Company.  Steadfast paid costs incurred in cleaning up the wastewater discharge and denied coverage for the costs incurred to avoid suspending operations.  

    Policy provisions

Coverage C of the Steadfast policy covered the costs of remediating contamination and legal claims arising from a pollution event, including "emergency expenses," that is, "costs, charges and expenses incurred to avoid an actual imminent and substantial endangerment to the public health or welfare or the environment."  

Coverage H of the policy covered loss of business income resulting from a pollution event that caused a "suspension of operations," which was defined as "necessary partial or complete suspension of operations at the covered location as a direct result of a cleanup required by a governmental authority."  The policy provided that Steadfast was responsible for such losses from four days after a notification of a suspension until Ken's Foods could resume operations.  Under this coverage, Ken's Foods was required to mitigate loss of business income, complete cleanup, and resume operations as soon as practicable in the event of a suspension of operations. 

    Certified question

Ken's Foods sued Steadfast in federal court.  The United States Court of Appeals for the First Circuit certified the question to the Supreme Judicial Court of Massachusetts: "To what extent, if any, does Massachusetts recognize a common-law duty for insurers to cover costs incurred by an insured party to prevent imminent covered loss, even if those costs are not covered by the policy?"  

    No coverage under the express terms of the policy

In Ken's Foods, Inc. v. Steadfast Insurance Co., the SJC responded today (January 6, 2023; published opinion not available yet) that costs incurred by Ken's Foods to prevent a suspension of operations were not recoverable under the policy, because there was no suspension of operations. Rather, Ken's Foods avoided a partial or complete suspension by implementing process changes and negotiating pollution allowances and accompanying fines with the county authority.  "These very measures showed that a partial or complete shutdown was not 'necessary,' albeit due to the creative response of Ken's Foods and the flexibility of government regulators."  

The court held that the mitigation of loss provision of Coverage H was inapplicable.  That provision also required a suspension of operations, which did not occur.  The provision did not require Ken's Foods to prevent an imminent suspension of operations or require reimbursement of such costs.  

    No coverage under common law

As a question of first impression in Massachusetts, the court held that Ken's Food did not have a common law right to reimbursement for the costs incurred to prevent a suspension of operations.  The court noted that this there is a division of opinion among other jurisdictions on this question.

The SJC contained its ruling to the language of the policy and stated that it was not addressing whether there can ever be a common law right to reimbursement -- although under its analysis, there can never be such a right if not set forth in the policy. The court held that the plain, unambiguous language of the policy and the rules for policy interpretation, as  it had already discussed, did not provide for coverage for preventative costs.  

    "Asymmetry" of coverage does not change analysis

In a footnote the court addressed Ken's Foods' argument that the lack of a duty of an insurer to pay for preventive costs creates an asymmetry:  If Ken's Foods had not taken preventative measures, Steadfast would have argued that it had failed to mitigate damages as required by the policy.  The court held, "However this is an asymmetry created by the text of the contract itself."  It quoted Williston on Contracts:  "The question whether a bargain is smart or foolish, or economically inefficient or disastrous, is not ordinarily a legitimate subject of judicial inquiry."