Catastrophe Insurance Bill criticized as subsidizing development in environmentally unstable areas

Here's an interesting article by Arthur D. Postal in National Underwriter about the Homeowner's Defense Act, H.R. 255, which would create a new federal reinsurance program for state catastrophe funds.

According to the article, critics claim the bill would only help "stupid, rich people who want to build mansions on sand dunes" at the expense of all other taxpayers.

The effect of global warming on insurance coverage issues

Mike Tracy of Rudolph Friedmann LLP forwarded a copy of this interesting article by Robert Redfearn, Jr. of Simon, Peragine, Smith & Redfearn about the likely effects that global warming will have on the insurance industry.

The article talks about claims alleging that corporations are liable for damages because their practices have contributed to global warming.

More broadly, global warming has already begun to impact insurance coverage litigation. As just one example, litigation arising out of Hurricane Katrina led to extensive interpretation of "anti-concurrent causation" or ACC, clauses in insurance policies. Those clauses exclude coverage whenever an excluded peril and a covered peril combine to damage a dwelling or personal property. Insurers denied coverage under homeowner's policies on the basis of those clauses where damage was caused by a combination of wind (a covered peril) and water (an excluded peril).

Contrary to article by conservative lobbying group, Massachusetts does not have "anti-steering" legislation

Stephen Richer, director of outreach of conservative lobbying group The Washington Legal Foundation, has sent me a link to an article protesting so-called anti-steering legislation that prohibits auto insurers from recommending particular body shops to insureds.

According to the article, six states, including Massachusetts, prohibit this practice. I was puzzled to read this as insurers have recommended auto body shops to me on the several occasions that my car has suffered property damage.

The Massachusetts statute cited by the article, Mass. Gen. Laws ch. 90, § 34O, does not "prohibit insurers from 'steering' policyholders to body shops with unsolicited recommendations," as claimed by the article.

To the contrary, the statute states that the insurance commissioner may require that insurers give to insureds "a list of at least five registered repair shops, geographically convenient for the insured, from which the insured may at his or her option selected a shop . . . "

Background on the Massachusetts Automobile Insurance Plan

In Arbella Mut. Ins. Co. v. Comm'r of Ins., the Supreme Judicial Court addressed several issues relating to the interplay between auto insurers that have recently entered the Massachusetts market and the Massachusetts Automobile Insurance Plan (MAIP), under which high-risk drivers obtain automobile insurance issued by private insurers.

This post will discuss the background of MAIP, and my next posts will discuss the substantive decisions made by the SJC about certain provisions of MAIP.

Mass. Gen. Laws ch. 175 § 113H requires the Commissioner of Insurance to create a system whereby auto insurers provide insurance to high-risk drivers (generally drivers who have received a lot of tickets or otherwise shown themselves likely to get into accidents). The Commissioner has a lot of leeway over exactly what the system will be.

MAIP is the current plan enacted by the Commissioner. Under it, insurers are assigned policies issued to high-risk drivers in proportion to each insurer's share of the voluntary market.

A foray into pop culture--and an explanation of negotiation

I recently saw Avatar, a movie about what happens when people are too caught up in their preconceptions to bother to negotiate.

In Avatar a marine goes to some far-away planet and infiltrates the indigenous people whose culture is the usual Hollywood image of the noble savage, more or less naked, unspoiled by consumer goods, happy to be in sync with nature and to ride their pet pteranodons. The evil earthlings have gone to the planet to exploit its natural resource, some weird rock. The biggest rock cache is under the giant tree where the Na'vi live and frolic.

Spoiler alert

The marine is accepted by the Na'vi and goes native. He tells the evil colonel and his evil capitalist boss that Earth has nothing the Na'vi want in exchange for leaving their tree. So the evil ones conclude that the only solution is to blow up the tree.

SLOW DOWN.

This is where the marine should go to his adopted people and say, "Guess what--the sky people want some rocks that are under the tree. Do you mind if they take them?"

The Na'vi might say, "Yes, we mind terribly and you'll have to blow up our tree to get our rocks." Then the movie would continue as if this interruption had never occurred.

Or, the Na'vi might say, "Rocks? Sure, we don't care, as long as you find an alternative to strip-mining. You know in that original ending to the movie, how you prayed to mother earth and she had all the animals help you kill a lot of people? Why don't you pray to her to have the rocks put in a neat pile instead?"

Or, they might say, "Yes but only if you give us plastic beads, wireless internet connection, a promise never to darken our treestep again, and/or veto power at the Security Council of the United Federation of Planets."

Parties negotiating over insurance often make the same mistake: They assume they know what the other side wants without bothering to ask. Typically, the insurer/adjuster/insurance defense attorney overlooks the fact that the claimant might be seeking something other than just money, or at least in addition to just money: maybe an apology from the tortfeasor, or an acknowledgement that their life has been diminished by the accident, or a show of respect. Claimants tend to overlook the fact that in the long run (and often, but not always, the short run) the insurance company cares most about money, in the form of keeping overall liability and defense costs down. Between the claimant and the insurer there is often a lot of unrealized common ground.

Blowing up the tree is not always necessary. Sometimes you just have to ask for what you want.

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Happy reading.

Insurance issues in Haiti

Here's an interesting article about insurance in Haiti: Haiti Quake Loss Has Little Insurance Cover, Modeler Says.

C'mon people, liability insurance is good

I found out this morning that my mechanic doesn't have liability insurance. That means I will be finding a new mechanic.

Why? Because anyone can have an off day. Sometimes an off day can lead to a tragic accident. If a member of my family is in a tragic accident because my mechanic is having an off day, life will be a whole lot worse for everyone if there's no insurance.

Years ago I was involved in a case where a garage emptied the oil from an engine and forgot to put more in. Insanely stupid--yes. The sort of thing that one can easily imagine happening? Absolutely. The engine seized up after the car was driven for a mile or two. Nobody was hurt and the claim was only for property damage.

But imagine that the garage had been near a highway entrance and the engine seized up on 128. The car sputters and slows, gets rear-ended by the car behind it, and someone ends up paralyzed. It's a horrible enough scenario with sufficient insurance. Without insurance, unless the injured person is independently very, very wealthy, they are likely looking at a life of poverty. They are unable to work and unable to afford to pay caretakers. A million dollars in an insurance settlement (which conservatively invested may provide $50,000 a year to live on) can be the difference between tragedy and hell.

If I were the owner of the garage I would grit my teeth every time I wrote my insurance premium check. But I would do it, not only to protect my business but to protect my customers

And now for something completely different . . .

An early 1970's pop-culture look at insurance fraud, with Farrah Fawcett and Colonel Potter thrown into the mix:

The Sound of Money

For anyone affected by the changes in the flood plain maps

Yesterday I posted on the changes to the flood plain maps in Massachusetts. Jenifer McKim, a reporter with The Boston Globe, is interested in speaking with people whose flood insurance has been or will be affected by the new maps. If you are interested in speaking with her you can reach her at jmckim@globe.com.

Changes to flood plain maps in effect or coming soon in Suffolk and other counties

Jenifer McKim of The Boston Globe alerted me to changes in flood plain maps being implemented in Massachusetts.

I have posted here and here about the National Flood Insurance Program. In that program FEMA subsidizes and at time issues flood insurance to homeowners.

Mortgage lenders require homeowners who live within flood plains to have flood insurance. FEMA is in the process of changing its flood plain maps county by county in Massachusetts.

I spoke with Chris Busch, the Executive Secretary of the Conservation Commission for the City of Boston. He informed me that the new maps for Suffolk County (which is Boston) went into effect on September 25, 2009. The changes to designated flood zones are based on better computer imaging of topography since the last time the maps were updated, between 1982 and 1990.

The City of Boston made an effort to contact homeowners whose houses are newly designated in flood plains, because if they purchased flood insurance before September 25 their old rates could be grandfathered in. There are some homeowners whose property was in a flood plain under the old maps but not under the new maps. They may not be required to carry flood insurance any more, but neither the city nor FEMA has made an effort to contact them. Dorchester is the most affected neighborhood in Boston, particularly Savin Hill and Port Norfolk.

Mortgage lenders can require homeowners to have flood insurance even if they are not in a flood plain, if they are in a "buffer zone"--an area outside by near a flood plain.

Why thieves can't get insurance

In my last post I discussed Genzyme Corp. v. Fed. Ins. Co., 2009 WL 3101025 (D. Mass.).

In that decision Judge Gertner included an interesting discussion of a fundamental tenet of insurance law: a "loss" does not include restoration of an ill-gotten gain.

A thief should not be able to claim the return of stolen property as an insurable loss. Similarly, an individual who breaches her contract and then is forced to pay damages should not be able to seek indemnification under an insurance policy. [This is an overstatement; there are circumstances when insurance covers damages flowing from a breach of contract.] If I pay only $100 for an item for which I promised to pay $200, and I am later ordered by a court to pay the additional $100, I should not be able to claim the additional $100 as an insurable loss. Had I paid the full $200 due up front, then clearly no part of the $200 would constitute loss covered by insurance. The dilatory nature of my obligatory payment should not transform it into an insurable event.

Moving violations and car insurance rates

I got my first moving violation ticket last week. Sadly it was well-deserved. Naturally my big concern was whether it would affect my car insurance rates. Happily it won't.

Massachusetts uses the Safe Driver Incentive Plan, or SDIP. Under SDIP insurance rates are affected by at-fault accidents or traffic violations. However, no points are assigned for the first minor traffic violation. Major violations include things like leaving the scene of the accident after injuring someone, and operating after your license is revoked. Minor violations include failure to stop at a signal and speeding.

Insurer for Pring-Wilson's mother argues no coverage for civil wrongful death suit

The sad, sordid tale of Alexander Pring-Wilson has made its way into the insurance coverage realm.

Pring-Wilson was a Harvard University graduate student who allegedly stabbed to death townie Michael Colono in an early morning fight in 2003. He was convicted of voluntary manslaughter; had the conviction overturned in an appeal that set new precedent regarding the admissibility of a history of violence by an alleged victim; had a second trial that resulted in a hung jury; and pleaded guilty to involuntary manslaughter.

Colono's estate then filed a civil action for wrongful death against Pring-Wilson.

In the latest chapter, last month Fire Insurance Company, which issued homeowners and umbrella policies to Pring-Wilson's mother, has filed a declaratory judgment action in the United States District Court for the District of Massachusetts seeking a declaration that Pring-Wilson is not covered under the policy. According to the complaint, Pring-Wilson's mother lives and the insured property is located in Colorado. Pring-Wilson was an emancipated adult attending school in Massachusetts.

Fire Insurance alleges that there is no coverage because Pring-Wilson is not a member of his mother's household and because the stabbing was not an "accident" within the meaning of the policy.

Under the Massachusetts choice of law doctrine, the federal court in Massachusetts will most likely apply the law of Colorado to determine the coverage dispute. (I'll discuss choice of law issues generally in a future post.) While I have never looked at the definition of "member of an insured's household" under Colorado law, I have looked at it under Massachusetts law. There are several cases that hold that an adult child not living with a parent is a member of the parent's household only if the absence from the household is intended to be temporary; financial dependence is also a factor.

Appellate Division holds that insured's fraudulent statements regarding lost income void all coverage for loss

In Lee v. Premier Ins. Co., 2009 WL 2438331 (Mass. App. Div.), the Massachusetts Appellate Division (a non-precedent setting court that hears appeals from the District Court)held that an insurer's fraudulent statements about his income voided his coverage not only for lost income but also for medical expenses.

The plaintiff, Lee, allegedly sustained injuries from a rear-end collision while operating a vehicle insured by Premier. Premier denied Lee's PIP claim, on the grounds of non-cooperation. Lee then sued Premier.

The evidence showed that in his PIP application and in an examination under oath Lee more than doubled the average weekly wage that he earned, and that he also exaggerated his annual income in 2003 in his examination under oath and at trial.

The Massachusetts Appellate Division held that in light of Lee's false statements with respect to his income Premier permissibly denied Lee's entire claim, including his claim for medical expenses. The court relied on Gechijian v. Richmond Ins. Co., 298 Mass. 487 (1937), which held:

when it is established . . . that the insured has knowingly made false statements, even in such a matter as value, for the purpose of influencing the adjustment of the loss, public policy demands that the contract be so construed as to discourage such conduct and to give full protection to the insurer.

U.S. District Court rules on Judge Ernest Murphy's claim against Boston Herald's insurer

Another chapter in the long, sometimes strange story of former Massachusetts Superior Court Judge Ernest Murphy's libel suit against the Boston Herald:

The Boston Herald published a story claiming that Judge Murphy had told a 14year old rape victim to "get over it." Judge Murphy sued the Herald for libel and won. He then sent somewhat threatening letters directly to the Herald (rather than its attorneys) on trial court stationery demanding that it drop its appeal. (Contrary to what you might sometimes see on TV, parties in a lawsuit are forbidden from communicating directly with each other; they may communicate only through their attorneys. And judges are forbidden from communicating personal business on court stationery.)

The judge subsequently asserted that he suffered from post-traumatic stress syndrome as a result of the Herald's articles and entered into an agreement with the Superior Court by which he agreed that he is permanently disabled from performing his judicial duties.

The most recent chapter in this case is Judge Murphy's lawsuit against the Herald's insurer, in which he sought damages for the insurer's failure to promptly settle his libel claim. The United States District Court for the District of Massachusetts has dismissed his claim in Mut. Ins. Co. v. Murphy, on the grounds that the Herald rather than the insurer exercised control over the defense.

Why PIP claims are rarely litigated

In my last post I discussed the Salem District Court case of Genest v. Commerce Ins. Co., in which an insurer was held not to have violated Mass. Gen. Laws ch. 93A when it based its denial of a PIP claim on an IME report.

In that case it is worth noting that although 93A damages were denied, the insured was probably awarded attorney's fees pursuant the PIP statute itself. The statute grants attorney's fees if judgment against the insurer enters on a PIP claim.

That is crucial. The maximum actual damages under a PIP claim are $8,000. Very few lawyers are willing to litigate a claim of that size. On a contingency fee claim they simply cannot make back their investment of time, and on an hourly basis the client would end up losing money. The only way such a claim is worthwhile is if an award of attorney's fees is available.

However, under the PIP statute, an insurer can pay a PIP claim at any time up until judgment enters, even after trial has begun, and not have to pay attorney's fees. As Genest illustrates, an insurer can incorrectly refuse to pay a PIP claim without being liable for attorney's fees under 93A.

That is why PIP claims are rarely litigated.

Insurer did not violate 93A when it relied on IME to deny PIP claim

Massachusetts Lawyers Weekly recently reported on the case of Genest v. Commerce Ins. Co., a Salem District Court case in which an insurer was held not to have violated Mass. Gen. Laws ch. 93A when it failed to pay PIP benefits.

I was unable to obtain a copy of the decision online, so I am relying on the Lawyer's Weekly summary.

The insurer initially denied the plaintiff's $250 claim for PIP benefits, in reliance on an independent medical evaluation report.

The court held that in so doing the insurer did not violate Mass. Gen. Laws ch. 93A, even though judgment eventually entered against the insurer.

The court said, "where an insurance carrier has grounded its denial of a claim upon a legitimate defense and thereafter simply determines to pay a claim (in this case a nominal claim) within thirty (30) days of when the benefits are due and payable (in this instance within thirty (30) days of entry of any judgment), the plaintiff shall not be entitled to G.L. Ch. 93A relief."

Division of Insurance reports that car insurance rates have fallen 8 percent

According to this article in The Boston Globe the Divison of Insurance reports that car insurance rates have fallen eight percent since deregulation began a little more than a year ago.

The article suggested that this statistic be taken with a grain of salt, noting that the report came out just before the July 4th weekend, suggesting that the Commission was hoping it would not be closely scrutinized.

Hudson crash survivors not receiving insurance

The New York Times has an interesting article on insurance issues facing the Hudson crash survivors. AIG, the airline's insurer, is refusing to pay the passengers' claims for medical expenses and lost property.

Although the article pulls on the heartstrings, from an insurance standpoint it makes sense that a liability insurer would not pay in the absence of negligence by the insured airline. The passengers claim that AIG is implying that they are to blame for their lost property and medical expenses; but in fact AIG is merely asserting that the airline is not at fault.