When worker's compensation collides with freedom of religion

Worker's Comp Insider has a fascinating article about a lawsuit in which a religious sect called the Hutterites, with similar roots to Mennonites, have been forced to purchase worker's compensation insurance for its communal work crews who receive no wages as such and have sworn not to ever sue anyone on pains of being banned from the sect. 

U.S. District Court rules no 93A violation where damages were not clear

Lynne Ingalls hired a lawyer, Michael Goldstein, to file a bankruptcy petition.  Ingalls told him and signed an affidavit affirming that she had filed a homestead declaration on real estate she owned with her sister.  (A homestead declaration protects certain equity in a home from creditors; until recently the exemption was not effective unless a document was filed with the Registry of Deeds.)  She testified on the issue in bankruptcy court.  Goldstein did not independently confirm the homestead declaration.  Eventually it was discovered that there was no homestead declaration of record.  As a result, the real estate was exposed to the claims of creditors.

Ingalls sued Goldstein for malpractice.  He asserted a defense of comparative negligence.  If successful, that defense would reduce or negate his liability.

Ingalls sent a 93A demand letter to Goldstein's Insurer, Minnesota Lawyers Mutual Company, demanding $100,000.  Minnesota offered $10,000, which Ingalls rejected.  Ingalls won at trial against Goldstein and, after post-trial motions, Minnesota paid the judgment of $98,018.95 including interest. 

In the 93A suit, Minnesota argued on summary judgment that liability was never reasonably clear prior to the jury verdict. 

In Ingalls v. Minn. Lawyers Mut. Ins. Co., 2013 WL 3943537 (D. Mass.), the United States District Court for the District of Massachusetts noted under Mass. Gen. Laws ch. 176D liability encompasses both fault and damages.  If damages are contested in good faith, then liability is not reasonably clear.  "This is especially true in cases involving comparative negligence.  In such circumstances, even if fault has been determined, if the percentage of potential damages attributable to the defendant is the subject of a good faith disagreement, then liability is not clear." 

The court held that although Goldstein's negligence was clear, the damages in the malpractice action were never reasonably clear prior to trial.  Ingalls' 93A demand letter did not lay out damages of $100,000, and her discussions of damages during discovery in the malpractice action continually evolved and involved future damages.  There was no evidence of actual out of pocket damages.  Moreover, there was always the possibility that her damages would be reduced by a comparative negligence finding. 

The court granted summary judgment to Minnesota, holding that it was impossible to conclude from the record that no reasonable insurer would have failed to settle the case.  

Interesting article on captive insurers

Forbes has an interesting article on captive insurers.  The main point is that captive insurers should actually insure actual risk, or else they are simply a fraudulent tax shelter. 

Massachusetts Appeals Court holds that short-term can be of indefinite duration

My last post discussed Central Mut. Ins. Co. v. True Plastics, Inc., 84 Mass. App. Ct. 17 (2013), in which the Massachusetts Appeals Court addressed whether Sanchez, an employee of a staffing agency, was a temporary employee or a leased worker of the company to which she was assigned, True Plastics, Inc.  If she was a leased worker then, as discussed in my last post, the liability policy issued to True Plastics by Central Mutual would not provide coverage.  If she was a temporary worker, however, the policy would provide coverage.  

The policy defined "temporary worker" as a person furnished to meet "short-term workload conditions."  The policy did not define short-term workload conditions. 

In a decision that invites insurance fraud, the court held that the only consideration in determining whether a person was furnished to meet short-term workload conditions is what the employer intended at the time the worker was hired.  "Even if a worker's assignment ends up being lengthy, he or she will still be a 'temporary worker' within the meaning of the policy, provided the insured held an objectively reasonable expectation at the time that the worker was furnished [that the worker was hired] to meet a short-term workload condition. 

Central Mutual argued that "short-term" workload conditions cannot be indefinite.  The court disagreed, and held that a short-term workload condition need not be of finite duration. 

The court held that True Plastics had met its burden of proving that Sanchez was furnished to meet a short-term increase in its workload. 

Massachusetts Appeals Court provides guidance on burdens of proof

I posted here about the Massachusetts Superior Court decision in Central Mut. Ins. Co. v. True Plastics, Inc., 2009 WL 2603151.  In that case the Superior Court held that whether or not a worker was a leased worker, in which case there would be no insurance coverage pursuant to a general liability policy, or a temporary worker, in which case there would be coverage, was a disputed issue of fact.  It denied summary judgment to both sides. 

Sanchez was injured while working on the premises of True Plastics, the insured. She was an employee of Dynamic Staffing, Inc., a company in the business of placing its employees at client companies.

After that decision the case went to trial as a "case stated," which essentially means that stipulations and agreed-upon evidence was submitted to the judge for a decision.  The judge ruled in favor of True Plastics.  Central Mutual appealed.  In Central Mut. Ins. Co. v. True Plastics, Inc., 84 Mass. App. Ct. 17 (2013), because of the procedural posture the Massachusetts Appeals Court gave no deference to the trial judge's findings.

The court noted that the definition of "employee" that was referenced in the employer's liability exclusion had two parts.  The definition stated that leased workers are employees (and therefore excluded from coverage under the employer liability exclusion).  "Because this provision expands the universe of persons excluded from coverage, the insurer has the burden of proving that a person falls within its scope." 

The definition of "employee" excluded from its definition temporary workers.  Read in the context of the employer liability exclusion, temporary workers were an exception to the exclusion.  True Plastics therefore had the burden of proof that Sanchez was a temporary worker. 

The court thereby touched on a thorny problem. While it is axiomatic that an insured has the burden of proving that coverage is triggered, the insurer has the burden of proving that an exclusion applies, and the insured has the burden of proving that an exception to an exclusion applies, frequently the policy clause that determines coverage is not found in an exclusion or an exception, but a clause that may be "exclusion-like" or "exception-like" (my terms).  Or sometimes a coverage clause is phrased in such a way that certain occurrences are not exactly "excluded" from coverage, but are left out of the definition of coverage.

Although the issue the court was dealing with here was more straightforward, its analysis is phrased in such a way as to help with the harder issues:  An insured has the burden of proof on a policy clause that expands coverage, whether that clause is in an insuring clause,  an exception to an exclusion, or elsewhere the policy.   An insurer has the burden of proof on a policy clause that contracts coverage, whether that clause is in an exclusion or elsewhere. 

Welcome to the 188th Cavalcade of Risk

 I am honored to be once again hosting the Cavalcade of Risk, a round up of risk-related posts of all sorts from around the blogosphere.

In reviewing the submissions for this cavalcade, I was struck by their technical and detailed nature.  I learned from the posts about the history of health insurance in China, how the MTA in New York City is planning for the next storm surge, and who serves on the Massachusetts Board of Registration in Pharmacy. Thank you to all participants for sharing your wealth of knowledge. 

The mechanics of insurance fraud, and of fighting insurance fraud 

At the blog "From Bob's Cluttered Desk" Robert Wilson describes in his post "An Engaged Carrier Can Improve Care While Lowering Pharmacy Costs"  how a worker's compensation carrier worked together with physicians and state government to reduce prescription drug abuse and save money.

In Employer Fraud is the Wrong Way to Reduce Workers Comp Costs, Michael Stack at the Workers Comp Resource Center states many ways that employers try to cheat the workers compensation system, and what the consequences are of such fraud. 

The mechanics of Obamacare . . .

In Delaying the employer mandate has little effect on the ACA, the Colorado Health Insurer Insider discusses the details of the employer mandate under the Affordable Care Act (ie, Obamacare).  The post points out that very few employers will be affected by the mandate. 

. . .  And of health insurance in China

Jason Shafrin of Health Care Economist describes the history of Health Reform in China.

The mechanics of providing funding for storm surge losses

Clare Wilkinson writes in the Terms + Conditions blog  about New York MTA in Storm Surge Catastrophe Bond First.   The captive insurer of the New York Mass Transit Authority (MTA) has turned to the catastrophe bond market to strengthen its reinsurance protection. The $125 million catastrophe bond will provide MTA with cover solely for storm surge – a first in the history of the catastrophe bond market.

The mechanics of scams, and the mechanics of helping someone who has been scammed

In Scamster Tricks, Hank Stern, the fearless leader of the Cavalcade of Risk, writes at Insureblog about how he (hopefully) saved a woman from being scammed by a fake health insurance agent.

The mechanics of obtaining life insurance despite a preexisting condition

In Life Insurance with Pre-existing Conditions. Jeff Rose at Life Insurance by Jeff states options for you if you have a preexisting condition and want life insurance. 

The mechanics of regulating pharmacists

At Health Business Blog David Williams argues in Pharmacy Board Needs a Non-Pharmacist Majority that in light of tainted steroid injections originating in Massachusetts that caused many fatalities, the composition of the  Massachusetts Board of Registration in Pharmacy should be changed to include more non-pharmacists. 

The mechanics of insurance coverage for flat tires

In Does Car Insurance Cover Tire Damage, Financial Ramblings posts on when auto insurance does and does not cover flat tires. 

The host of the next Cavalcade of Risk is R. J. Weiss of Weiss Insurance Agencies.

SJC further limits title insurer's duty to defend

Accredited Home Lenders issued a loan, secured by a mortgage, to Karla Brown for her purchase  of a house, and bought a title insurance policy from First American which provided coverage to it and its successors and assigns.  The mortgage was subsequently assigned to Morgan Stanley, of which Deutsche Bank is the trustee. 

Three years after taking out the mortgage loan Brown filed suit seeking to rescind the mortgage and void her debt.  She alleged that she was the victim of a predatory lending scheme, that the defendants unilaterally misrepresented her income to justify higher interest rates and higher monthly payments, and that they coerced her into accepting loans that she could not afford. 

Deutsche Bank requested that First American defend its mortgage interest.  First American denied the claim.

In Deutsche Bank Nat'l Ass'n v. First Am. Title Ins. Co., 465 Mass. 741 (2013), the court examined First American's duty to defend.  It turned to the very problematic decision in  GMAC Mortgage, LLC v. First Am. Title Ins. Co., 464 Mass. 733 (2013), which I discussed (and strongly criticized) here.  That case held that a title insurer, unlike a liability insurer, does not have duty to defend all claims in a complaint against an insured if less than all the claims are covered by the policy.  

In Deutsche Bank the court further ate away at a title insurer's duty to defend.  It held that unlike a liability insurer a title insurer does not have a duty to defend simply because the allegations in the underlying complaint are reasonably susceptible of an interpretation that they state or adumbrate a claim covered by the policy terms.  "Application of this standard threatens to sweep a whole host of uncontemplated risks into the ambit of title insurance.  . . .  To avoid such an aberration, we conclude that a title insurer's duty to defend is triggered only where the policy specifically envisions the type of loss alleged." 

The supposedly new standard stated by the court for title insurers is not new; it is the standard for liability insurance.  There is no duty to defend where a complaint does not allege a covered loss.  That is the meaning of the "state or adumbrate" standard.  It's odd and disturbing that the court does not understand this.

What the court really meant was that even if a complaint states or adumbrates a covered loss, a title insurer does not have a duty to defend if the covered loss is not the main thrust of the complaint.  That was made clear when the court turned to the allegations asserted by Brown. 

The court noted that the policy covers loss or damage sustained or incurred by the insured by reason of the "invalidity or unenforceability of the lien of the insured mortgage upon the title."  The policy provided that First American would defend the insured "in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against." 

The court held that Brown's allegations did not assert invalidity or unenforceability of the lien.  She alleged the debt should be voided because she was the victim of a predatory lending scheme, and that she was entitled to rescind the security interest and void the loan indebtedness. 

The court held, "Where the substance of Brown's complaint is concerned with the validity of the underlying loan and whether it was procured by a 'predatory lending scheme,' not whether the mortgage was improperly executed, improperly recorded, or otherwise procured by fraud, we conclude that its claims were not specifically envisioned by the terms of the title insurance policy.  Consequently, the allegations of the complaint fall outside the scope of the policy."

In a footnote, the court stated, "We do not construe the complaint to allege that the mortgage instrument itself was forged or that its execution was the product of fraud.  Assuming such a claim had been made in the present dispute, it might have been specifically excluded by Exclusion 3(a), which denies coverage to defects created by the insured."

The court noted that Brown's attempt to rescind the security interest was only a "collateral consequence" of the main relief sought, voiding the loan indebtedness.  "We are aware that, if Brown prevails and her underlying debt is extinguished, this would have the practical effect of dissolving Deustche Bank's mortgage interest, insofar as there would be no debt to secure.  However, given that Deutsche Bank and its predecessors in interest, rather than First American, were in the best position to ensure that the underlying debt was valid, it is for them to bear the burden of any loss."

As a matter of public policy I like the result of this decision.  Predatory lending is a scourge on society, and mortgagees are complicit in its widespread use.  There should not be insurance coverage for claims alleging it.

But the lack of insurance coverage should come from an exclusion, perhaps Exclusion 3(a), referenced by the court, or an intentional acts exclusion or the like.  There is no need to eat away at the duty to defend or to make distinctions without a difference.