Insurance Claims and Bad Faith Law Blog

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EXCESS CARRIER'S MOTION BARS PRIMARY CARRIER EXPERT FROM REALIGNING RELATIONS.

          In Netherlands Ins. Co. v. Lexington Ins. Co., 2013 WL 2120817 (W.D. Ky. May 15, 2013), Netherlands was the primary carrier and Lexington was the excess carrier for insureds they had in common.  They signed an agreement that said so, which ended up in an Agreed Order in Netherlands' lawsuit against Lexington.

          Netherlands' lawsuit against Lexington alleged claims for equitable subrogation, breach of contract, and unjust enrichment.  Under all claims, Netherlands requested that Lexington pay 50% of  the $226,650.57 in defense expenses incurred by Netherlands in defending the underlying claims.

          Parenthetically, Lexington retained a different defense counsel from the one retained by Netherlands, in order to pursue a "causation defense".  Lexington incurred $101,679.82 in billings from the separate defense counsel it retained, and it paid the bill.  Netherlands Ins. Co. v. Lexington Ins. Co., 2013 WL 2120817 *1-*2 (W.D. Ky. May 15, 2013).

          Netherlands' case against Lexington rested in large part on an argument that during the discussions leading to their written agreement, Lexington and Netherland also agreed that they would share defense expenses 50-50.  Lexington denied this.

          Netherlands proffered the testimony of an expert witness who was a lawyer and a former claims adjuster that he interpreted the carriers' agreement to require a fifty-fifty split of the underlying defense expenses.  He based this conclusion in part on an exchange of e-mails between the carriers. Netherlands Ins. Co. v. Lexington Ins. Co., 2013 WL 2120817 *8 (W.D. Ky. May 15, 2013).

          Lexington, the excess carrier, filed a motion to exclude the expert testimony, which the Court granted.  Unfortunately, the Court wrote rather broadly about the particular expert's reading of e-mails in this case:

Moreover, it is inappropriate to allow an expert to interpret the parties' e-mail communications, as experts have no specialized knowledge that would aid in their interpretations.

Netherlands Ins. Co. v. Lexington Ins. Co., 2013 WL 2120817 *8 (W.D. Ky. May 15, 2013).

          The Court's actual holding in this regard was made clear later in the Court's opinion.  The Court granted the motion to bar this testimony because it constituted a legal conclusion, e-mails or not:

           This case boils down to a simple question: whether there was a valid, enforceable contract between Netherlands and Lexington to share the defense costs. As to this question, Netherlands seeks to offer Mr. Huff's opinion that there was such a contract based on the parties' e-mail communications. The Court finds, however, that Mr. Huff's opinion is nothing more than a legal conclusion. Mr. Huff has basically analyzed the facts himself (i.e. the language of the e-mail communications) and drawn a legal conclusion based on his interpretation of these facts (i.e. a contract existed). This is unacceptable. The Sixth Circuit has long held that expert testimony on the law “is excluded because the trial judge does not need the judgment of witnesses.” . . .     Other courts have reached similar conclusions.

 Netherlands Ins. Co. v. Lexington Ins. Co., 2013 WL 2120817 *9 (W.D. Ky. May 15, 2013).

          On the same ground, that an expert witness should not be permitted to testify to legal conclusions, the Court excluded the Netherland's expert's opinions interpreting the insurance policy provisions and the Agreed Order.  Netherlands Ins. Co. v. Lexington Ins. Co., 2013 WL 2120817 *9-*10 (W.D. Ky. May 15, 2013).

Please Read The Disclaimer.

 

NO COVERAGE, NO BAD FAITH becomes NO DAMAGES, NO ACTION.

          In Siena Del Lago Condo. Ass'n v. American Fire & Cas. Co., 2013 WL 2127137 (W.D. Wash. May 14, 2013), a U.S. District Court in the State of Washington applied the vast majority rule that where there is no coverage, there can be no bad faith claim, either, but only as to one set of claims alleged in that case.

          As to "bad faith" and certain statutory claims, the Court held that relief could not be granted upon them, in the words of the Federal Rules of  Civil Procedure, because no damages were proven to result from them.

          Accordingly  the Court granted Mt. Hawley's Motion for Summary Judgment on all these claims and dismissed them with prejudice:

          The Court must dismiss Plaintiff's IFCA [Insurance Fair Credit Act] claim because Mt. Hawley's denial of coverage was proper and therefore it did not act unreasonably in denying coverage. The Court must dismiss Plaintiff's bad faith and CPA [Washington State Consumer Protection Act] claims because Plaintiff has failed to identify damages proximately caused by Mt. Hawley's conduct.

 Siena Del Lago Condo. Ass'n v. American Fire & Cas. Co., 2013 WL 2127137 *5 (W.D. Wash. May 14, 2013).

          The Court in this case was clearly willing to entertain claims of bad faith and alleged violations of the Washington State CPA, in other words.  However, in that case the plaintiff condominium association did not put evidence of damages caused by the alleged unfair or bad faith behavior in the record; as a result, there was no genuine issue of material fact about the issue of damages caused by any alleged "bad faith" conduct of the insurance company.  There, the law might have supported these alleged claims, but the record facts did not.

Please Read The Disclaimer.

SETTLING EVERY CASE IS NOT A GOOD POLICY.

          A U.S. Senator is focusing the attention of the Department of Justice, the Federal Reserve, and the Securities and Exchange Commission on why they exist.

          They exist for the purpose of protecting the public and enforcing the law.  Each of them in the past has equated serving this purpose with making secret settlements with investment banks.  That includes the secrecy surrounding why exactly they do not demand admissions of guilt in making settlements with investment banks.

          They are not your ordinary parties to civil litigation, who settle their differences rather than go to trial.  Regardless of their public releases, these agencies of government are not serving their common purpose by pursuing a policy of constantly  settling with wrongdoers in every situation.

          They are prosecutors, these agencies, not simply parties who as it happens have a difference of opinion about the wrongs that were done and are still being done.

          Senator Elizabeth Warren (D-Mass.) has demanded that the Department of Justice, the Federal Reserve, and the Securities and Exchange Commission provide the Senate with the analyses they have done, if any, on the pros and cons of settling with large financial institutions accused of financial wrongdoing, without requiring an admission of guilt.  See E. Scott Reckard, "Sen. Warren Goads Fed, SEC, DOJ to Explain No-Fault Bank Deals" (Los Angeles Times Online at www.latimes.com, posted May 14, 2013).

          More to come....

Please Read the Disclaimer.

Related articles

UPDATE 2-US Senator Warren wants bank settlements to be justified

Warren Questions U.S. Agencies on Lack of Bank Trials - Bloomberg

US senator: Show me the economic analysis on settlements vs trials

AFTER SANDY, NORTHEAST IS THE NEW SOUTHEAST FOR CATASTROPHE RISK ...

... UNDERWRITERS POINT TO THEIR COMPUTER MODELS TO TEE OFF ON SANDY DAMAGE.

           Computer models.  Underwriters are now using computer models to justify talk of higher Premiums to come in the Northeast after all the damage that Sandy caused, if property or flood insurance are going to be made available at all in the Northeast.

          In virtually the same language across the Internet, all sorts of sites are publishing the observation that after Sandy, underwriters and the makers of Catastrophe computer models all "will now treat the Northeast more like the Southeast when it comes to property pricing and the availability of flood insurance."  A representative sample comes from Amy O'Connor, "After Sandy, Underwriters, CAT Models View Northeast Like Southeast:  NAPCO" (Insurance Journal Online, posted May 6, 2013).

          There is definitely something to it, in a sense.  There is a recognition in that repeated observation that climate change is not only real right now, it is also so much the reality of our future that even the Northeast can expect previously unusually destructive weather and coming at previously unusual times of the year, as Sandy did.

          However, the idea that opinions about what exactly the future will bring, fed by underwriters into computer programs which exist for the purpose of supporting premium rate increases which are going to be requested from State Insurance Commissioners, is suspect, notwithstanding.

          This shameful exercise with computer programs force-fed by underwriters is not good faith nor fair dealing.

Please Read The Disclaimer.    

THE FDIC'S PURSUIT OF BAD FAITH.

          Case law reflects the lines being drawn by the Federal Deposit Insurance Corporation in its pursuit of recoveries while standing in the shoes of banks in its receivership.

          In Federal Deposit Ins. Corp. v. Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A., 2013 WL 1830806 *1 (M.D. Fla. May 1, 2013), the FDIC alleged claims of legal malpractice and breach of fiduciary duties.  The defendants are a law firm and a lawyer who advised a bank regarding a closing which involved $5,300,000.00 in a "real estate acquisition and development loan" to a development company.

          Parenthetically, the issue presented to the Court which resulted in this particular decision was the Defendants' Motion in Limine to Exclude Expert Testimony by one of the FDIC's Experts, a nonlawyer who was proffered to testify about "'commercial lending and underwriting practices, bank management, bank operations and procedures, and the standards of care in the banking industry.'"  Federal Deposit Ins. Corp. v. Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A., 2013 WL 1830806 *1 (M.D. Fla. May 1, 2013).  The Court denied the motion.

Please Read The Disclaimer.    

NEW JERSEY FIRST-PARTY CONSEQUENTIAL DAMAGES: "VALUE AS A COMPANY".

          A First-Party Bad Faith breach of contract claim may nonetheless allow for recovery of consequential damages.  In New Jersey, for example, it has been held that an insurer's implied contractual duty to act in good faith and to deal fairly in the settlement of claims, under which the insurer is viewed as a fiduciary to a party with whom it has a contract, will allow for the recovery of consequential damages.  In particular, the plaintiff seeking recovery of damages in excess of the policy limits must show that the insurance company failed to pay without even a debatably valid reason not to pay, and that the claimed consequential damages were clearly within the contemplation of the insurance contract.  Thus, a corporation's  "claim for damages for its diminution in value" is a claim which allows for the potential recovery of consequential damages, it has been held, arising out of Title Insurance Carriers' failure to pay claims under Title Insurance Policies.[1]

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[1] Walsh Securities, Inc. v. Cristo Prop. Mgt., Ltd., 2012 WL 6053948 *2 (D.N.J. November 28, 2012).

 

Please Read The Disclaimer.

 

INVESTMENTS IN MORTGAGE-BACKED SECURITIES Continued ... The Third Judge Speaks.

This continues an article begun here on Sunday, April 28, 2013.

      One Judge, Judge Straub, dissented in part and concurred in part.  Judge Straub pointed out that previous ERISA case law had consistently followed an objective "prudent person" standard; "it focuses on the process of the fiduciary's conduct preceding the challenged decision."[1]  The focus of the prudent person standard of fiduciary liability under ERISA "asks whether the fiduciary, at the time he engaged in the challenged transaction," used methods which were appropriate both to investigate, and if the investigation turned up good results, to set up the investment.[2]

      Anyone who has had the experience of writing a pleading, whether it be a complaint, an answer and affirmative defenses, or all of these, knows that in drafting a client's allegations of fact it is good pleading practice to frame the available facts based on the prevailing law.  Given the potential of a later motion being filed by the opposing party or parties to challenge whether these factual allegations are properly framed either as a claim or as a defense under the applicable law, the pleader tries to frame the client's allegations accordingly, applying law to fact because that is what the Court will do if the legal sufficiency of the allegations is attacked.  If the pleader can match factual allegations available in the given case to read in a similar way to legal quotations which she or he will argue from relevant case law or statutes at the hearing, so much the better.

      That is precisely what the attorneys for the plaintiffs tried to do in this case, match their clients' factual allegations to the applicable law -- or at least to the law which applied at the time the complaint was filed.  Recall that that ERISA case law extant at the time that the complaint in this case was filed, had consistently followed an objective "prudent person" standard; "it focuses on the process of the fiduciary's conduct preceding the challenged decision."[3]  The focus of the prudent person standard of fiduciary liability under ERISA "asks whether the fiduciary, at the time he engaged in the challenged transaction," used methods which were appropriate both to investigate, and if the investigation turned up good results, to set up the investment.[4]

      In this case, the plaintiffs pleaded that the defendant breached its fiduciary obligations under ERISA "by making 'high-risk investments ... at precisely the time when defaults of subprime mortgages were skyrocketing and numerous subprime lenders were facing insolvency.'"  That is what they specifically alleged, for example, in paragraph 29 of their Amended Complaint.[5]

      The one Judge in the minority on this panel pointed out that although the Amended Complaint did not contain factual allegations that "specifically detail" how the defendant perpetrated its  alleged mismanagement, the plaintiffs did sufficiently "allege that [defendant] acted imprudently by maintaining investments in high-risk mortgage securities, at a time when [defendant] knew or should have known that the market for such securities was collapsing."[6]  Regardless of whether the plaintiffs would ultimately prevail at the end of this case, the plaintiffs at the beginning of this case sufficiently alleged a breach of fiduciary duties under ERISA against Wall Street, in the eyes of the Judge who was in the minority on this panel.

      There you have it.  Two Judges applied what amounted to a summary judgment or directed verdict standard, both dependent on evidence of record, to a motion to dismiss an amended complaint and concluded not that proof was lacking but that allegations were lacking (even though, at least arguably, they were there).  It is respectfully submitted that the Judge who wrote in the minority on this panel was the one who got it right in this case.

 

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[1] Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgt., Inc., 2013 WL 1296481 *19 (2d Cir. April 2, 2013)(Straub, J., dissenting and concurring in part).

 

[2] Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgt., Inc., 2013 WL 1296481 *19 (2d Cir. April 2, 2013)(Straub, J., dissenting and concurring in part).  [Emphasis added.]

 

[3] Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgt., Inc., 2013 WL 1296481 *19 (2d Cir. April 2, 2013)(Straub, J., dissenting and concurring in part).

 

[4] Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgt., Inc., 2013 WL 1296481 *19 (2d Cir. April 2, 2013)(Straub, J., dissenting and concurring in part).  [Emphasis added.]

 

[5] Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgt., Inc., 2013 WL 1296481 *20 (2d Cir. April 2, 2013)(Straub, J., dissenting and concurring in part).  [Emphasis added.]

 

[6] Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgt., Inc., 2013 WL 1296481 *20 (2d Cir. April 2, 2013)(Straub, J., dissenting and concurring in part).  [Emphasis added.]

 

Please Read The Disclaimer.

INVESTMENTS IN MORTGAGE-BACKED SECURITIES CANNOT ALLEGEDLY VIOLATE FIDUCIARY DUTIES.

INVESTMENTS IN MORTGAGE-BACKED SECURITIES CANNOT ALLEGEDLY VIOLATE FIDUCIARY DUTIES, two Judges say.

           Two Judges on the Second Circuit Court of Appeals stressed the lack of "factual detail" in a group of pension funds' allegations that the defendant investment bank, Morgan Stanley, violated "its fiduciary duties under the Employee Retirement Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq." by investing in mortgage-backed securities ("RMBS").[1]  The two Judges did not say that investing in residential-mortgage back securities, which in this case included a wide assortment of RMBS including subprime mortgages, was a good thing.  They said that the plaintiffs did not support their claims of "imprudence" with "well-pleaded factual allegations" that investments backed by subprime mortgages were a breach of the defendant's fiduciary duties.

          Here is what the two Judges said:

     In sum, viewing the allegations in the Amended Complaint as a whole, and drawing every reasonable inference in favor of Saint Vincent's, the Amended Complaint does not allege facts plausibly showing that Morgan Stanley knew, or should have known, at the relevant times, that the securities held in the fixed-income Portfolio were imprudent investments. Instead, the Amended Complaint alleges imprudence by association, reasoning that because the Portfolio contained nonagency mortgage-backed securities—of which subprime mortgage-backed securities are now the most infamous type—and because the whole world knows (in hindsight) that many subprime mortgages turned out to be disastrous investments, the Portfolio's concentration in mortgage-backed securities generally and nonagency securities in particular was imprudent. The relevant pleading standards do not permit such general accusations of imprudence, unsupported by well-pleaded factual allegations.[2]

      The two Judges shared the view, then, that the plaintiffs' allegations of breach of fiduciary duties were based on nothing more specific than "imprudence by association".  Everyone knows now, they said, that subprime mortgages are risky investments and poor collateral, but that is hindsight.

      That is not what the plaintiffs alleged.  Their allegations are reproduced more or less verbatim in the third Judge's opinion, and they will be examined in detail not only in the third Judge's opinion, but in the next post continuing this article.  Suffice it to say now that the plaintiffs were much more specific than the majority described.  The plaintiffs alleged that at the time it engaged in the RMBS transactions, the defendant fiduciary used methods of investigation inadequate to the task, and that even the investigation conducted by the defendant turned up bad results which did not dissuade the fiduciary from making the investments, to the detriment of the plaintiffs.

      The majority ignored these allegations and attempted to re-label them.

      There is a saying which is familiar in many parts of the United States.  If you take a cow, and hang a sign around its neck that says, "Horse," if it has horns and an udder, it is still a cow.

To be continued ....

Please Read The Disclaimer.

         

 

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[1] Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgt., Inc., 2013 WL 1296481 *1 (2d Cir. April 2, 2013).

 

[2] Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgt., Inc., 2013 WL 1296481 *12 (2d Cir. April 2, 2013).

 

Please Read The Disclaimer.

SETTLEMENT WITHOUT PROPERLY INVESTIGATING: HOW MUCH INVESTIGATION IS ENOUGH?

          There is a tension between properly investigating a claim against a Policyholder, on the one hand, and actively engaging in negotiations to settle that claim.

          Without taking "a reasonable amount of time to properly investigate a claim before engaging in settlement negotiations," a Liability Carrier may be acting in Bad Faith.  See Merrett v. Liberty Mutual Insurance Co., 2013 WL 1245860 *3 (M.D. Fla. March 27, 2013).

          "However, it is also true" that where damages are great and liability is probable in the case against the Policyholder, in some jurisdictions at least the Liability Carrier has an affirmative duty to initiate settlement negotiations.  Merrett v. Liberty Mutual Insurance Co., 2013 WL 1245860 *3 (M.D. Fla. March 27, 2013).

          This article will offer a resolution whenever a Judge or Jury in a Bad Faith Case is likely to view Damages as great and Liability as probable.  The situation described here means that it is more likely than not that the underlying Damages will be held by the Court or found by the Jury in the Bad Faith Case to be great, and that the Court will hold or the Jury in the Bad Faith Case will find that Liability in the underlying case was probable.

          When these described outcomes in the Bad Faith Case occur in a particular Bad Faith case, it also means that the Court and Jury view the underlying Damages and Liability exposure as so clear without further investigation that the Good Faith duty of settlement initiation will probably be held or found to have been triggered in that case.

          In that event, in jurisdictions recognizing the duty of settlement initiation, initiation quite simply trumps investigation -- or a Court is likely to hold and a Jury to find that initiation trumps investigation in the particular case.

          Here, it is submitted, is a resolution of the tensions between the Liability Carrier's Good Faith duties of investigation and initiation:    When Damages are reasonably known to be great, and Liability is reasonably known to be probable, the Liability Carrier's prudent course is to initiate and not to insist that instead there is a need to investigate in that situation. 

Please Read The Disclaimer.

TWO LAWYERS IN WISCONSIN: ONE TESTIFIED, THE OTHER DID NOT.

          Two lawyers were identified as witnesses to testify in a Wisconsin Third-Party Bad Faith case.  One of the two lawyers was identified as an Expert Witness by the Plaintiff Policyholder.  He was not allowed to testify.  The Court noted that this lawyer came into Court with "impressive legal experience".  The Court stated that it had no doubt that the proferred Expert "is well qualified to provide an opinion on issues of coverage."  Therein lies the rub, however.  "[H]is opinion is on purely legal issues and provides his subjective legal conclusions."  Cousins Submarines, Inc. v. Federal Insurance Co., 2013 WL 494163 *13 (E.D. Wis. February 8, 2013).

          When the Court ruled that this Expert could not offer his Opinions on legal conclusions, the Court in this case left little doubt who has that job:

The Court is perfectly able to analyze the law applicable to the claims in this case and the underlying claims in the prior action; it does not need a separate expert providing what is essentially a separate legal brief to make its legal determinations, here. However, the Court having decided the bad faith issue without the assistance of [the proferred Expert's] brief, and the Court granting summary judgment to Federal on that issue, the Court will deny Federal's motion to exclude [the proferred Expert's] opinion (Docket # 46) as moot.

Cousins Submarines, Inc. v. Federal Insurance Co., 2013 WL 494163 *13 (E.D. Wis. February 8, 2013).

            The second of the two lawyers fared better than the first did, at least in terms of being permitted to testify.  The other lawyer represented the Plaintiff Policyholder in the underlying action.  The second lawyer "offers his beliefs as to the reasons [that the Plaintiff] settled the prior action."  The Liability Carrier filed a Motion to Strike this lawyer's Affidavit "as offering improper expert testimony."  The Court declined the opportunity and denied the Motion to Strike.

          The Court expressly disagreed that the second lawyer's Affidavit is really an Expert Report.  The second lawyer in this case "is better classified as a fact witness.  Granted, there is a very thin line between the testimony offered by [the second lawyer] and that offered by [the first lawyer]:  both witnesses' testimony relies on subjective legal conclusions."  The testimony which the second lawyer was in a position to give, however, "derives from his position as an attorney in the prior action.   At that time, he was able to gather impressions about the prior action.  He now offers testimony regarding the conclusions he reached at that time.  To the Court, this seems to be much closer to a fact witness than to an individual offered as an expert."  Cousins Submarines, Inc. v. Federal Insurance Co., 2013 WL 494163 *14 (E.D. Wis. February 8, 2013).  [Emphasis added.]

          When legal conclusions became a matter of fact, this Court allowed evidence of them, a ruling which some would consider discerning or even courageous in the factual context of this particular case.  When legal conclusions were matters of opinion, this Court followed the universal rule and disallowed them totally.

Please Read The Disclaimer.

FLORIDA BAD FAITH CLAIM: PREMATURITY, CIVIL REMEDY NOTICE CONDITIONS PRECEDENT.

           Case law applying Florida's Bad Faith Statute, Section 624.155, imposes one condition precedent which flows from the Statute, but refuses to add another condition precedent that the Statute itself does not contain.

          These decisions are embodied in the recent case of Hunt v. State Farm Florida Insurance Co., 2013 WL 1352471 (Fla. 2d DCA April 5, 2013).  Section 624.155 has been held to offer a defense of prematurity particularly to First-Party Bad Faith Claims.

"Prematurity" is really a defense that liability and covered damages have not been favorably determined to the Policyholder.  A Judgment of Breach of Contract is not the only way of obtaining a favorable resolution to satisfy the Florida Statute, however.  It is settled now that an Arbitration Award which establishes the validity of the Policyholder's Coverage Claim is a satisfactory condition precedent.  So it was held in  State Farm Florida Insurance Co., 2013 WL 1352471 *1 (Fla. 2d DCA April 5, 2013).

          In addition, there is an explicit statutory condition precedent of a Civil Remedy Notice of Insurer Violation (CRN) under the Florida Statute.  One thing that the Florida Statute does not require, however, is that the CRN contain a definite "cure" amount, meaning an amount of money stated in the CRN which the Policyholder (or other complainant) contends is the amount of money due from the Insurance Company under the Insurance Contract.  "On its face, the statute does not require a specific cure amount.  We are hesitant to impose a requirement beyond that directed by the legislature."   State Farm Florida Insurance Co., 2013 WL 1352471 *2 (Fla. 2d DCA April 5, 2013).

          One condition precedent imposed, another supposed condition precedent rejected.  Florida Statute Section 624.155 is interpreted by the Florida Courts and Florida lawyers in ways which may often be unknown to others.

Please Read The Disclaimer.

Related articles

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Florida Supreme Court: First-Party Bad Faith Claims Only By Statute.

EVIDENCE OF GOOD FAITH WILL DETERMINE BREACH OF INSURANCE CONTRACT.

           In Lumpuy v. Scottsdale Insurance Co., 2013 WL 1365765 (M.D. Fla. April 4, 2013), a Federal Judge considered a Defendant's Motion to Reconsider its Order Denying Defendant's Motion for Summary Judgment.  The Federal Judge denied the motion for reconsideration.  In doing so, the Court expounded on its previous holding that evidence of Good Faith or Bad Faith will be admissible to prove Breach of the Insurance Contract in that case, in which the alleged Claim was Breach of Contract because the Insurance Company apparently denied Coverage.   (It seems to be the case, but the opinion on rehearing is understandably not prolonged in its discussion of the case history.)

          In any case, it seems that the Plaintiff-Policyholder has not alleged a claim for Bad Faith in this case, only a claim for Breach of Contract.  See Lumpuy v. Scottsdale Insurance Co., 2013 WL 1365765 *2 (M.D. Fla. April 4, 2013).

           The Court's further explanation assists greatly in understanding the Court's resolution of the issues in this case.  In denying the Insurance Company's motion for reconsideration, the Court's original holding at first seems on its face to be outside the majority view, which has it that an actionable Breach of Contract cannot properly be determined by evidence of the breaching party's motive.

          In this case, the Plaintiff is the owner of Commercial Property.  The Defendant issued an Insurance Policy of an undescribed nature to the Plaintiff which contained "sinkhole coverage."  The Policyholder received a repair recommendation from an engineering concern, one FTE.  In reliance on FTE's recommendation, the Policyholder entered into a contingent contract with one Champion to repair its property; the contingency was that the Defendant would approve the contract.

          The Defendant did not approve the Champion contract.  Rather than accepting FTE's repair recommendation, the Defendant chose a competing recommendation by one Miller.  Whether the Defendant acted in Good Faith or not with regard to its choices, would have to be determined in order for the jury to reach the ultimate issue of whether the Defendant Breached its Insurance Contract in this case, according to the District Judge:

    In the instant case, Plaintiff asserts a breach of contract claim based on two things: (1) Defendant's failure to tender the policy limits, even after the neutral evaluator estimated the repair costs to exceed the $150,000 policy limit; and (2) Defendant's failure to approve the Champion contract. Plaintiff does not assert a claim for breach of the implied warranty of good faith and fair dealing, and as such, the OBE decision [QBE Insurance Corp. v. Chalfonte Condominium Ass'n, 94 So. 3d 541 (Fla. 2012)] does not control this issue.

    Furthermore, in order to determine whether Defendant breached the insurance policy, the jury will have to determine: (1) whether FTE's repair recommendation was superior to Miller's repair recommendation; (2) whether Defendant acted in good faith, or whether it acted unreasonably, when it failed to approve of FTE as the engineer; and (3) whether Defendant acted in good faith, or whether it acted unreasonably, when it failed to approve the Champion contract based on FTE's repair recommendation. If the jury concludes that (1) FTE's repair recommendation was superior to Miller's repair recommendation; (2) Defendant acted unreasonably when it failed to approve of FTE as the engineer; and (3) Defendant acted unreasonably when it failed to approve the Champion contract based on FTE's repair recommendation, then the jury could find that Defendant breached the insurance policy by failing to tender the remaining policy limit for Plaintiff's sinkhole claim.

Lumpuy v. Scottsdale Insurance Co., 2013 WL 1365765 *2 (M.D. Fla. April 4, 2013).

          Nor, the Court wrote parenthetically, was there any need to interpret Policy provisions in this case:

    In the instant case, there is no need to construe a policy provision. Instead, the jury will be asked to determine whether there was a basis for Defendant to deny payment of Plaintiff's claim, and as such, whether Defendant's denial amount to a breach of the insurance policy.

Lumpuy v. Scottsdale Insurance Co., 2013 WL 1365765 *3 (M.D. Fla. April 4, 2013).

          Well there you have it.  Sometimes Courts will not only allow evidence of Good Faith or Bad Faith even when no Bad Faith Claim is alleged, but sometimes as in this case they will hold that such evidence is determinative of the outcome of a Breach of Contract Claim.

Please Read The Disclaimer.

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MEDIATION STATEMENTS = EVIDENCE OF BAD FAITH?

          It appears to be settled California law that there are no exceptions to the confidentiality of mediation communications or to the statutory restrictions placed on the content of Mediator Reports.

          However, in another case arising under California law,  a U.S. District Court allowed an amendment to an Excess Carrier's Bad Faith Complaint to add a Bad Faith theory of failure in settlement which included reference to a party's Mediation Statement in the underlying case:

Arch complains of Traveler's failure to offer a settlement amount at anytime prior to the bench trial finding of liability, including in response to Plaintiff's $14 million evaluation made in a mediation statement.

Travelers Indemnity of Connecticut v. Arch Specialty Insurance Co., 2013 WL 322889 *2 (E.D. Cal. January 28, 2013).

          Perhaps a communication made in a "mediation statement" is not a confidential "mediation communication" in California?

Please Read The Disclaimer.

MISCONDUCT INDUCING FHA INSURED MORTGAGES: LITIGATION ALLOWED DESPITE SETTLEMENT AGREEMENT.

          The purpose of a Settlement Agreement almost always includes obtaining a Release of all claims based upon the same conduct, whether or not the claims were actually made.  Sometimes, even when the party receiving the Release pays lawyers handsomely to craft the Release, a Court comes along and ruins it with a holding that the previous Release does not bar the present lawsuit.

          Such is the holding in a case in which the United States, joined by State Attorneys General, sued over alleged misconduct which induced the Federal Housing Administration (FHA) to insure Mortgage loans arranged by Bank of America and Wells Fargo and other high-rent-district Defendants.

          The procedural basis for this ruling was Wells Fargo's Motion to Enforce a previous Consent Judgment (i.e., to enforce a settlement with a Release in it), which was drafted on behalf of some or all of the same Defendants.

          Wells Fargo argued that the Release barred all litigation based on the same "underlying conduct"; the Court was of the opinion, after reading the Release, that it released only the specific  "claims" which were chosen for identification in the Release.

          To quote the words written by the Court to announce its holding in this regard:

In Paragraph 3(b) [of the Release drafted on behalf of the Defendants], the United States releases Wells Fargo from claims based on the annual certification. See Release ¶ 3(b) at F–16–F–17 (“[T]he United States fully and finally releases [Wells Fargo] from any civil or administrative claims it has or may have .... under FIRREA [and] the False Claims Act where the sole basis for such claim or claims is that [Wells Fargo] submitted to HUD–FHA ... a false or fraudulent annual certification that the mortgagee had “conform[ed] to all HUD–FHA regulations necessary to maintain its HUD–FHA approval ...”). Paragraph 3(b) specifically states that claims based on fraudulent annual certifications are released; it does not state that claims based on “Covered Origination Conduct” or any other underlying conduct are released. Paragraph 3(b) does not mention the conduct underlying annual certifications. Presumably, a false annual certification could jeopardize each application for FHA insurance during that year and potentially expose Wells Fargo to hundreds, if not thousands of claims under the FCA and other statutes.

United States v. Bank of Am., 2013 WL 504156 *6 (D.D.C. February 12, 2013).  [Emphasis by the Court.] 

          To say again, the purpose of a Settlement Agreement almost always includes obtaining a Release of all claims which were made, or which could have been made, based upon the same conduct.  Sometimes, even when the party receiving the Release pays lawyers handsomely to craft the Release, a Court comes along and ruins it with a holding that the previous Release was not written in such a way as to bar the present lawsuit.  It appears that these troubles from time to time bedevil other parties besides Insurance Companies settling lawsuits for their Policyholders or for themselves.

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Shame on You, Shaun. That'll Be Ten Hail Marys, ...

Force Placed Insurance and the Duty of Good Faith.

FIRREA IS NOT A FURRY CREATURE FOR D&O INSURER DJA.

          The Federal Deposit Insurance Corporation became the Court-appointed Receiver for Habersham Bancorp in Georgia.  In that capacity, the FDIC sued certain Habersham Directors and Officers to get back over $4 Million in losses based on "allegedly improper dividends" approved by the underlying defendants-Directors-and-Officers in violation of their Fiduciary Duties.  OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *1 (N.D. Ga. March 28, 2013).

          The Plaintiff issued a Management and Professional Liability Insurance Policy to Habersham under which the Directors and Officers could claim Coverage.  The Liability Insurance Company filed a Declaratory Judgment Action as a preemptive strike to obtain a declaration of no coverage for various reasons.  The D&O Defendants filed a Motion to Dismiss the DJA based on lack of Subject Matter Jurisdiction.  OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *2 (N.D. Ga. March 28, 2013).

          The Federal Court GRANTED the D&O Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction, and here's why.  The ruling is potentially significant to D&O Insurers seeking DJ's of no Coverage for bank Directors and Officers, as in this case.

          The D&O Defendants in this DJA based their no-subject-matter-jurisdiction argument on a Federal Statute which, of course, applies throughout the jurisdictions of the United States (and not just Georgia, where this case was filed):

D & O Defendants assert that Plaintiff's claim is precluded by Section 1821(j) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). (Def.s' MTD, Dkt. [33] at 7.) Under § 1821(j), “no court may take any action, except at the request of the Board of Directors by regulation or order, to restrain or affect the exercise of powers or functions of the [FDIC] as a conservator or a receiver.” At issue here is the FDIC's power to “collect all obligations and money due the institution” that has been placed into receivership. See 12 U.S.C. § 1821(d)(2)(B)(ii). The so-called “anti-injunction provision” (§1821(j)) was “intended to permit the FDIC to perform its duties as conservator and receiver promptly and effectively without judicial interference.”

OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *2 (N.D. Ga. March 28, 2013).

           Following the holding in a 2010 decision by the Northern District of Illinois, the Federal Judge in the Northern District of Georgia held in this case that a "preemptive determination of rights with respect to the D & O policy was jurisdictionally barred by Section 1821(j).  OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *3 (N.D. Ga. March 28, 2013).  The Federal Judge in Georgia elaborated:

   The FDIC Claim seeks to recover sums owed to the bank because of the D & Os' alleged wrongful conduct; if the FDIC succeeds, the D & O Coverage would help satisfy any judgment for the bank.  Section 1821(j)'s language is broad: “no court may take any action ... to restrain or affect the exercise of powers or functions of the [FDIC].” (emphasis added). According to the Eleventh Circuit, “[t]he exceptions to § 1821(j)'s jurisdictional bar are extremely limited.”  [Citation to Eleventh Circuit decision omitted here.] The Court finds that issuing a declaratory judgment on Plaintiff's claims would affect the FDIC's ability to collect money due to Habersham. Consequently, the claim is barred by § 1821(j).

OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *4 (N.D. Ga. March 28, 2013).

          The Plaintiff D&O Liability Insurer is not left without a remedy by this holding, however.  "Plaintiff's claims can be pursued through FIRREA's administrative process' authorized by Section 1821(d).  OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *5 (N.D. Ga. March 28, 2013).

          FIRREA is not a furry woodland creature for certain D&O Liability Insurance Companies.  This decision applies to bar DJA's apparently whenever the FDIC sues "insured" bank Directors and Officers to get the defunct banks' money back as an alleged result of the D&O Defendants' "Bad Faith" Breach of Fiduciary Duties.

Please Read The Disclaimer.

 

 

Related articles

Regulators, Like People, Matter.

FEDERAL DEPOSIT INSURANCE COVERAGE EXPLORED FOR BANK OFFICERS AND EMPLOYEES.

   There is information available for Bank Officers and Employees made available on the Federal Deposit Insurance Corporation website through telephone seminars.  There is a telephone seminar coming up later this week about Federal Deposit Insurance Coverage for those who wish to learn about it and about the FDIC's working procedures.

   Interest in such information is heightened after surprising revelations of previously secret FDIC settlements with individual Bank Directors and Officers allegedly responsible for the Great Financial Fiasco through which we are now living.  The secrecy provisions are apparently in violation of Federal law.  See "Say It Ain't So, Sheila:  The FDIC's Secret Settlements" posted on Insurance Claims and Bad Faith Law Blog on Monday, April 1, 2013.

   Access to this information is provided here today because the information comes through FDIC webinars/telephone seminars where the host requires registration at least two (2) business days before the event.  The next FDIC-sponsored Comprehensive Seminar on Deposit Insurance Coverage is offered on April 4, 2013.  It is scheduled to begin at 3:00 P.M. EDT and last for two (2) hours.  Here is a link to the page of the FDIC site to begin registration.  If you cannot attend on April 4th, there are other dates on which this seminar is offered through December 3, 2013.

    Registration is also available through the FDIC webpage for Bank Officers and Employees to a seminar on Deposit Insurance Coverage -- Revocable Trusts.

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Related articles

Regulators, Like People, Matter.

Mortgage Servicers, Mortgage Settlement: Dealing Fairly in Financial Good Faith.

OPPORTUNITY TO BE HEARD ON FORCE PLACED INSURANCE.

          The Federal Housing Finance Agency ("FHFA") has issued a Notice that it invites our Comments on restrictions it should consider placing on Lender Placed (Force Placed) Insurance under Mortgages involving Fannie Mae and Freddie Mac:  Download LPIregister32613.pdf.FHFA Notice of Restrictions Proposed on Lender Placed Insurance Terms and Conditions.  The FHFA is the Conservator for these two government sponsored enterprises ("GSEs").

          Specifically, the FHFA is interested in hearing from anyone interested in these areas in which the FHFA is considering restrictions on Lender Placed Insurance:

The specific practices related to lender placed insurance that FHFA has determined pose risks to the Enterprises or run contrary to the duties of the Conservator and for which actions are specified are practices where there are concerns regarding conflicts between parties to the insurance agreement, including:

1. Certain Sales Commissions. The Enterprises shall prohibit sellers and servicers from receiving, directly or indirectly, remuneration associated with placing coverage with or maintaining placement with particular insurance providers.

2. Certain Reinsurance Activities. The Enterprises shall prohibit sellers and servicers from receiving, directly or indirectly, remuneration associated with an insurance provider ceding premiums to a reinsurer that is owned by, affiliated with or controlled by the sellers or servicer.

 Id. at 4.

           The Comment period will end 60 days from publication of the FHFA Notice in the Federal Register.  In an abundance of caution, I am calendaring Friday, May 24, 2013 or the 60th day by my calculations after the Notice was signed by the FHFA Acting Director on March 25, 2013, in order to be absolutely certain my input makes the FHFA deadline.

          Here are the portals through which the FHFA will receive our incoming input:

FHFA will accept public input through its Office of Housing and Regulatory Policy (OHRP), no later than [INSERT DATE 60 DAYS AFTER PUBLICATION IN THE FEDERAL REGISTER], as the agency moves forward with its deliberations on appropriate action. Communications may be addressed to Federal Housing Finance Agency, OHRP, Constitution Center, 400 Seventh Street SW., Ninth Floor, Washington, DC 20024, or emailed to LPIinput@fhfa.gov. Communications to FHFA may be made public and posted without change on the FHFA Web site at http://www.fhfa.gov, and would include any personal information provided, such as name, address (mailing and email), and telephone numbers.

Id. at 4-5.

This is our opportunity to have our voices heard!  Won't you  join me in insuring that this opportunity is placed on Lender Placed Insurance?

A similar article on Wednesday, March 27, 2013 on Insurance Claims and Issues Blog similarly announced the opportunity provided by the FHFA to be heard on LPLI.

Please Read The Disclaimer.

Related articles

Force-Placed Insurance Issues in New York: Your State, Too.

New Jersey Bad Faith Law, Federal Class Action, Force-placed Flood Insurance.

UPDATE on the Whole Financial Catastrophe, JPMorgan Also.

 More on the Good Faith of JPMorgan.  (This post updates the article by the same name, posted here on Tuesday, March 19, 2013.)

It seems that for a brief moment, at least, the immense power of the United States Senate Permanent Subcommittee on Investigations focused public attention on the possible misdeeds and definite mistakes of JPMorgan executives and its chief.  See, e.g., Ben Protess and Jessica Silver-Greenberg, "Trading Hearings Put Focus Back on JPMorgan's Chief" p. B1, col. 5 (New York Times Nat'l ed., "Business Day" Section, Monday, March 18, 2013); Jessica Silver-Greenberg, "JPMorgan Executives Face Withering Questions at Senate Hearing" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, March 16, 2013).

It bears repetition to make the following observation once more, as was published here on March 19, 2013:

    One ironic feature of interest in JPMorgan's suspect trading activities, apparently totally unmentioned in the newspaper reports, is that JPMorgan was trading in  Credit Default Swaps (CDS's), otherwise known as unregulated Credit Insurance.  See "JPMorgan Chase Whale Trades:  A Case of History of Derivatives Risks and Abuses," Report of the Permanent Subcommittee on Investigations, Committee on Homeland Security, United States Senate, in particular pages 29-30 and search the document for "credit default swaps" (307 pages; stated "Released in Conjunction With The Permanent Subcommittee on Investigations March 15, 2013 Hearing"):  Download REPORT - JPMorgan Chase Whale Trades (3-15-13)2[1].    

 

Force-Placed Insurance?  One person's "commissions."  Other people call them "kickbacks."

The New York State Department of Financial Services reportedly has noted publicly "that JPMorgan Chase has made about $600 million since 2006 by taking 75 percent of the profit from the force-placed business it gave" to insurance giant Assurant, the country's largest force-placed insurer at this time.  Karen Freifeld and Ashutosh Pandey, "UPDATE 4--Assurant Settles With New York Over 'Force-Placed' Insurance" (Reuters Online, posted Thursday, March 21, 2013).

 

Assumption of the Risk?  But this isn't a lawsuit and there is no "Assumption of the Risk" Affirmative Defense to a Bad Faith Claim.  You're right.  This isn't a lawsuit.

So, after some 5 years, the question has changed:  If someone keeps on keeping on, making money at my expense, not changing their ways of doing it, and if I do nothing about it, have I learned my lesson?  See Jesse Eisinger, "Lesson Learned After Financial Crisis:  Nothing Much Has Changed" (Dealbook, New York Times, March 19, 2013).  See, in addition, Moyers & Company, airdate Friday, March 22, 2013, Bill Moyers interview with Sheila Bair, head of the Systemic Risk Council and most recently, Chair of the Federal Deposit Insurance Corporation.

Please Read The Disclaimer.

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Tuesday in Tampa: JPMorgan Shareholders Deserve More Than Apologies.

Regulators, Like People, Matter.

When RISK MANAGERS Took Risks, Made Profits, Who Knew From Losses?

BREAKING LAW NEWS: Force-Placed Insurance vs. ....

.... Implied Covenant of Good Faith, Fair Dealing.

          This post updates the article which was posted in two parts, first here on Tuesday, March 5, 2013, "Force-Placed Insurance vs. Implied Covenant of Good Faith, Fair Dealing," and on Wednesday, March 13, 2013 on Insurance Claims and Issues Weblog.

           In what qualifies for one of the more recent decisions on this issue, a District Judge in the U.S. District Court for the Southern District of Florida has entered an Opinion and Order Denying a Motion to Dismiss in a Force-Placed Insurance Putative Class Action:

Martorella v. Deutsche Bank National Trust Co., 2013 WL 1137514 (S.D. Fla. March 18, 2013).

          In pertinent part, the District Judge recognized the settled rule in Florida, as in most if not all other jurisdictions in the United States, that "[a] covenant of good faith and fair dealing is implied in every contract."  Martorella v. Deutsche Bank National Trust Co., 2013 WL 1137514 *5 (S.D. Fla. March 18, 2013).  Here, the Mortgagor-Plaintiff specifically alleged that the "Defendants breached the [standard form] mortgage agreement and the covenant of good faith and fair dealing implied therein".  Martorella v. Deutsche Bank National Trust Co., 2013 WL 1137514 *3 (S.D. Fla. March 18, 2013).  In Florida, again as in most U.S. jurisdictions, where a contracting party is vested with discretion by the contract, "the implied duty of good faith and fair dealing attaches as a gap-filling default."  The implied covenant "fills the gaps" by imposing on the contracting party which is vested with discretion, a legally enforceable duty "to act in a commercially reasonable manner that satisfies the reasonable expectations of the parties."  Martorella v. Deutsche Bank National Trust Co., 2013 WL 1137514 *6 (S.D. Fla. March 18, 2013).  Breach of the implied duty of good faith and fair dealing is enforceable at law in damages, and the Court held that such is the case here:

         Here, the force-placed insurance clause granted Defendants discretion in determining whether to purchase force-placed insurance after a policy had lapsed, and under what terms. Plaintiff's allegations that Defendants failed to observe reasonable limits in exercising their discretion to force-placing policies at grossly excessive premiums in exchange for kickbacks from the insurance carriers fully states a claim for breach of the covenant of good faith and fair dealing.

Martorella v. Deutsche Bank National Trust Co., 2013 WL 1137514 *6 (S.D. Fla. March 18, 2013). 

          Parenthetically, the Court held that the Defendants' attempt to have class action allegations 'dismissed' was inappropriate for resolution in a case where the class was not yet certified and the Plaintiffs have not even filed a Motion to Certify the Class.  The Court declined to determine class certification "at this time."  Martorella v. Deutsche Bank National Trust Co., 2013 WL 1137514 *8 (S.D. Fla. March 18, 2013). 

          See, in addition, Karen Freifeld and Ashutosh Pandey, "UPDATE 4--Assurant Settles With New York Over 'Force-Placed' Insurance" (Reuters Online, posted Thursday, March 21, 2013):  "Assurant, the country's largest force-placed insurer, is the first to settle an industry-wide probe launched in October 2011 by DFS, New York state's insurance regulator....  In the United States, the force-placed homeowner's market  is dominated by Assurant and Australian insurer QBE."

 The Wages of Sin May Be Paying Attorney's Fees and Indemnity.

          There is a newspaper report on the troubles faced by the common Defendants in increasing litigation expenses caused by the Great Recession, including Force-Placed Insurance lawsuits -- featuring the very same Deutsche Bank that is the first-named Defendant in the Martorella case analyzed in this article.

          Reportedly, Deutsche Bank is required to set aside reserves, or "provisions," in order to cover litigation expenses such as its own attorney's fees and indemnity payments for settlements and judgments.  Its current "provisions" for litigation are ten (10) times greater than the entire net profit Deutsche Bank declared last year, or 2,400,000,000 (2 Billion, 400 Million) Euros which are currently set aside by Deutsche Bank as litigation provisions as compared with 237,000,000 (237 Million) Euros in declared Deutsche Bank profit in 2012.

          Deutsche Bank is reportedly required to "provision for legal liability" when it reaches a "reasonable certainty on timing and amounts of potential verdicts or settlements."  The litigation in which Deutsche Bank is involved includes Force-Placed Insurance Cases, as we have seen in this article today, and other litigation involving, for example, allegations and claims over Deutsche Bank's alleged involvement with Mortgage Backed Securities (MBS's) and manipulation of interest rates.  See Laura Stevens and Ulrike Dauer, "Deutsche Bank's Legal Bill Mounts" p. C1, col. 6 (Wall Street Journal, Thursday, March 21, 2013)(subscription required by the Wall Street Journal to access online).

Please Read The Disclaimer.

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FAIR DEALING: THE LAW ALREADY GOT THERE. Update: MORE IS NEEDED.

Force-Placed Insurance Issues in New York: Your State, Too.

Force Placed Insurance and the Duty of Good Faith.

Fair Dealing: The Law Already Got There. More is Needed.

The Good Faith of JP Morgan.

    "While we have repeatedly acknowledged significant mistakes, our senior management acted in good faith and never had any intent to mislead anyone."  Unidentified JPMorgan spokesperson, quoted by Jessica Silver-Greenberg and Ben Protess, "Senate Inquiry Faults JPMorgan on Trading Loss / Rebuke for the C.E.O. / Bank Seen as Ignoring Big Risks -- Hearing is Set on Issues" p. A1, col. 6 (New York Times Nat'l ed., Friday, March 15, 2013).

"Let me be clear, JPMorgan completely disregarded risk limits and stonewalled federal regulators.  This bank appears to have entertained, indeed embraced, the fact that it was too big to fail."  Senator John McCain (R-Ariz.), quoted by Jim Puzzanghera, "Former 'London Whale' Boss at JPMorgan Admits Mistakes" (Los Angeles Times Online, posted Friday, March 15, 2013), in a newspaper report about the Senate investigation and report on "$6.2 billion" worth of JPMorgan "mistakes".

     JPMorgan Chase is far and away "the bank that enjoys the best reputation among its peers."  JPMorgan is also the largest trader in derivatives on the face of the earth.  Gretchen Morgenson, "Fair Game / JPMorgan's Follies, For All To See" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, March 17, 2013).      

     Reportedly when its London traders increasingly provoked JPMorgan's own internal measure of risk to sound the alarm that something  destructive might be happening or about to happen, JPMorgan changed the metric it used to measure risk.  The change was made in January, 2012 and enabled the London traders "to continue building the big bets, the [U.S. Senate] subcommittee found."  Jessica Silver-Greenberg and Ben Protess, New York Times, supra.  See, in addition, Jim Puzzanghera, Los Angeles Times, supra.

     The change was "personally authorized" by JPMorgan CEO Jamie Dimon.  Jessica Silver-Greenberg and Ben Protess, New York Times, supra.

     "No, that is not acceptable practice."  Testimony of Douglas L. Browstein, Vice Chair, JPMorgan, quoted  by Gretchen Morgenson, New York Times, supra.  Here is a link to the Witness Testimony and the senators' statements at the Hearing of the Senate Permanent Subcommittee on Investigations of the Committee on Homeland Security held on Friday, March 15, 2013. 

      "[F]ive former and current JPMorgan executives [were called] to testify about the trades at a six-hour hearing -- and they all sought to pass the buck."  Jim Puzzanghera, Los Angeles Times, supra.

     In the utmost Good Faith and with no intent to mislead anyone about the risk disclosed only to JPMorgan by JPMorgan by its original metric.  Absolutely.

    One ironic feature of interest in JPMorgan's suspect trading activities, apparently totally unmentioned in the newspaper reports, is that JPMorgan was trading in  Credit Default Swaps (CDS's), otherwise known as unregulated Credit Insurance.  See "JPMorgan Chase Whale Trades:  A Case of History of Derivatives Risks and Abuses," Report of the Permanent Subcommittee on Investigations, Committee on Homeland Security, United States Senate, in particular pages 29-30 and search the document for "credit default swaps" (307 pages; stated "Released in Conjunction With The Permanent Subcommittee on Investigations March 15, 2013 Hearing"):  Download REPORT - JPMorgan Chase Whale Trades (3-15-13)2[1].    

Please Read The Disclaimer.

 

RETURNING CALLS: GOOD CLAIMS HANDLING AFTER CATASTROPHES, ANY LOSSES.

This is an update to articles concerning Claims Handling After Sandy, which were posted here on Sunday, March 3, 2013 and on Thursday, March 7, 2013.

           As previously reported, many Policyholders are unsatisfied with what they consider to be insufficient offers from their Homeowners and other Property Insurance Carriers toward paying Sandy Damage Claims.  See, for example, the Comments printed in "Bucks / Troubles With Flood Insurance" p. B4, col. 1 (New York Times Nat'l ed., "Business" Section, Saturday, March 9, 2013), and published online following the post by Tara Siegel Bernard, "How Does Your Hurricane Sandy Claim Stand" ("Bucks" Blog at New York Times Online, Friday, March 1, 2013).  

          In particular, a commonly reported complaint of many Policyholders is that Adjusters are not returning their calls.

          One of the major goals of modern adjustment of Claims is or should be to avoid or prevent Bad Faith Claims, so far as possible.  Many seminars are held frequently in which presenters speak at length about how in their judgment Adjusters can do their best to avoid Bad Faith lawsuits.  Yet, one of the ways to avoid Bad Faith lawsuits is simply human.

          People do not like to be ignored, whether they are Policyholders or Adjusters.  Telephone calls should be returned.  This is not only simple courtesy, but it is a very good way to avoid angering somebody.  People do a lot of things when they are angry, that they might not think about doing, at least right away, when they are not angry.

          No-one is likely to sue you because you returned their calls.

          Further, they called you because they want to talk with you, not necessarily because they want to sue you or your Company.

          Hurricane and Other Catastrophe Claims Handling, and Avoiding Bad Faith While Handling Catastrophe Claims, are some of the articles featuring these tips in Claims Magazine, for example, and you can read them online or print them, free, from the Publications Page of my website.

Have a good St. Patrick's Day today!

Please Read The Disclaimer.

INSUREDS' REIMBURSEMENT OF INSURER'S DEFENSE COSTS: NOT IN WASHINGTON STATE.

            The Supreme Court of Washington has recently addressed the issue of whether a Liability Carrier which defends under a Reservation of Rights, including a reservation of its right to recoup its defense expenses for noncovered claims which the Carrier defended, and if a Court later determines that there was no Coverage, i.e., no Duty to Defend, may the Liability Carrier then recover its defense expenses from its own Insureds in such cases.  Many Courts have addressed this precise issue by answering "yes".  See generally Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 3:6, "Informing the Insured:  Insurer Assertion of Rights to Reimbursement From the Insured of Clearly Noncovered Indemnity and Defense Expenses" (West 3d Edition, 2013 Supplement in process).

            In a recent decision, the Supreme Court of Washington has answered "no" to this question.  As the majority of the Court put it at the outset of its opinion:

 ¶ 1 This court has long recognized that a liability insurer uncertain of its obligation to defend its insured may undertake a “reservation of rights” defense while seeking a declaration regarding coverage. The question in this case is whether the insurer may unilaterally condition its reservation of rights defense on making the insured absorb the defense costs if a court ultimately determines there is no coverage. We answer no. We recognize, however, that an insurer may avoid or minimize its responsibility for defense costs when an insured belatedly tenders a claim and the insurer demonstrates actual and substantial prejudice as a result. We affirm the Court of Appeals.

 National Surety Corp. v. Immunex Corp., 2013 WL 865459 *1 (Wash. March 7, 2013)(en banc).

            The majority's holding drew a sharp rebuke from a dissenting Justice in this case:

¶ 43 Rather than focus on the equities of the case at hand, the majority seizes on this opportunity to pronounce that insurers who defend under a reservation of rights may never recoup defense costs after a court determines that an insurance policy does not cover an insured's claim and that the insurer never had a duty to defend. This rule is both overly broad and unnecessary, and in the context of this case, it is unjust. I dissent.

 National Surety Corp. v. Immunex Corp., 2013 WL 865459 *11 (Wash. March 7, 2013).

             The issues are joined.  Although the division among the Courts is a close one, the Washington Supreme Court majority followed an apparent minority view in this case.  Liability Carriers in Washington State would be well advised to govern themselves accordingly.

 Please Read The Disclaimer.

PART PAYMENT OF FLORIDA PROPERTY CLAIMS.

          In Florida, the Unfair Claim Settlement Practices Act has been amended to apply to situations of “partial coverage”:

 (i) Unfair claim settlement practices.--

***

 e. Failing to affirm or deny full or partial coverage of claims, and, as to partial coverage, the dollar amount or extent of coverage, or failing to provide a written statement that the claim is being investigated, upon the written request of the insured within 30 days after proof-of-loss statements have been completed ....

 Fla. Stat. § 626.9541(1)(i)3e.  Paragraph (i) of Subsection 626.9541(1), quoted above, is made actionable by Fla. Stat. § 624.155(1)(a), “the Florida Bad Faith Statute”.

        A more recently enacted Florida statutory provision, Fla. Stat. § 627.70131(5)(a), provides in pertinent part:

    Within 90 days after an insurer receives notice of an initial, reopened, or supplemental property insurance claim from a policyholder, the insurer shall pay or deny such claim or a portion of the claim unless the failure to pay such claim or a portion of the claim is caused by factors beyond the control of the insurer which reasonably prevent such payment.

 Failure to comply with this provision is a violation of the Florida Insurance Code.  Fla. Stat. § 627.70131(5)(a).  "However, failure to comply with this subsection does not form the sole basis for a private cause of action."  Fla. Stat. § 627.70131(5)(a).  [Emphasis added.]

        It has therefore been held in the Florida case law that failure to comply with this subsection does not provide a separate claim.  However, the same Court that announced this holding also stated in apparent dicta that a violation of this statutory subsection could nonetheless be considered in evidence in a bad faith claim or a Department of Insurance review.  Buckley Towers Condo., Inc. v. QBE Insurance Corp., 2008 WL 2490450 *11 (S.D. Fla. June 18, 2008)(Torres, United States Magistrate Judge), report and recommendation adopted by United States District Judge in 2008 WL 2856457 (S.D. Fla. July 24, 2008).  Accord as to holding, QBE Insurance Corp. v. Dome Condo. Ass'n, Inc., 577 F. Supp. 2d 1256, 1261-62 (S.D. Fla. September 16, 2008).

        Perhaps in response to such Federal judicial decisions, a new statutory Unfair Claims Practice was thereafter enacted by the Florida Legislature:

       4.  Failing to pay undisputed amounts of partial or full benefits owed under first-party property insurance policies within 90 days after an insurer receives notice of a residential property insurance claim, determines the amount of partial or full benefits, and agrees to coverage, unless payment of the undisputed benefits is prevented by an act of God, prevented by the impossibility of performance, or due to actions by the insured or claimant that constitute fraud, lack of cooperation, or intentional misrepresentation regarding the claim for which benefits are owed.

 Fla. Stat. § 626.9541(1)(i)4.  The new provision applies to residential property insurance claims. 

           New Florida case law clarifies the meaning and application of the statutory mandates for paying undisputed parts of residential property insurance claims.

 To be continued on Insurance Claims and Issues Weblog ....

 Please Read The Disclaimer.

 

Sandy and Bad Faith Claims: And So It Begins MORE.

This is an update added to the article posted here on Sunday, March 3, 2013.

  "A disaster just happened and they're making money off of us.  That's just not right." Nicholas Dorman, New York City Firefighter with large Damage Claims from Sandy and small payment since, quoted by Sophia Hollander, "Sandy Stirs Legal Mess" (Wall Street Journal Online accessible without subscription, posted Monday, March 4, 2013).

    Another catastrophe continues to be reported after Sandy.  Policyholders say their Sandy Claims are not being paid in nearly the amounts they thought their Coverage would bring.  Insurance Carriers say their Policyholders have often not read their Policies.  These are events which fall under the old saying, "Everything is changing, nothing is new."

    What seems new about Sandy Claims is that somehow banks are reported to be holding up Insurance money until they are convinced by Property Owners that the money will be put to the banks' idea of good use.  It would be worthwhile knowing exactly what these payments involve.  Presumably they involve "Flood and other Hazard Insurance" paid for by Mortgagors-Homeowners to protect the banks' security interest in the mortgaged property.  In any case it would be good to know how unnamed, unidentified banks got such power.

    Another new Sandy Claims development surrounds how the Federal Taxpayer money is spent that was intended to help victims of the damage caused by Sandy.   Reportedly, fewer Sandy victims are receiving allocated FEMA payments for Flood Damage than received the same type of payments for Hurricane Katrina damage, for example.

    Finally, and as one person quoted in the following article observed, it seems "ironic" but Sandy left a need for even more lawyers.  See Sophia Hollander, "Sandy Stirs Legal Mess" (Wall Street Journal Online accessible without subscription, posted Monday, March 4, 2013).

    A catastrophe which leaves people at the mercy of banks and in need of lawyers to receive full compensation for their Damage Claims, is a catastrophe twice over, the first due to the weather, and again a second time after the storm passes by.

Please Read The Disclaimer.

WHAT'S "PRODUCTIVITY" GOT TO DO WITH IT?

With Apologies for fair use to Tina Turner.

    Newspapers have gone goofy, I think.  Reporters write as though they are truly puzzled because they attribute increased profits to gains in "productivity," yet there are increasingly fewer jobs.  It seems they just cannot figure this out.  See, e.g., Nelson Schwartz, "Recovery in U.S. Lifting Profits, Not Adding Jobs / Wall Street is Buoyant / A Gulf is Widening as Federal Budget Cuts Take Effect" p. A1, col. 6 (New York Times Nat'l ed., Monday, March 4, 2013).  It would help to understand, I submit, not to think in terms of "productivity" at all. 

    At least newspapers report the phenomenon of higher profits and fewer workers.  However, productivity in the sense of workers producing more things in less time while working the same number of hours, does not explain it.  "Productivity" has nothing to do with it.

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Force-Placed Insurance vs. Implied Covenant of Good Faith, Fair Dealing

    Forcing the placement of insurance may be allowed by mortgage contracts.  The way in which the insurance is placed, however, has come under very close scrutiny recently.

    In an increasing number of cases, mortgagors are alleging claims associated with the forced placement of insurance by lenders.  These  claims often include claims based upon alleged breach of the implied covenant of good faith and fair dealing.  The implied covenant at issue in these cases is generally if not always the implied covenant of good faith and fair dealing which is implied in all contracts. This is very different from the basis for imposing the duties of Good Faith and Fair Dealing which are at issue in cases of alleged insurer bad faith. 

    In the cases which present claims resulting from force-placed or lender-placed insurance in the mortgage context, the implied covenant of good faith and fair dealing claims are frequently targeted by lenders with the argument that a Court should not entertain a claim for alleged breach of the implied covenant if there is an express contract between the parties.  These defendants argue that the mortgagors' alleged implied covenant claims ought to be subject to the ordinary rule that where there is an express contract between the parties, the rights and duties between them should be governed by their contract.

    This argument is not ordinarily found, if ever it is found, in cases of alleged insurance bad faith.  There is a good reason for that:  Courts imply what they term Insurers' duties of Good Faith and Fair Dealing because the Courts have deemed the Carriers' Insurance Policy Contracts  to be legally inadequate to provide redress to injured Policyholders and third parties allegedly harmed by 'Bad Faith' and Unfair Dealing in the Insurance Carriers' handling and negotiating settlement of claims.  See generally Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith (Third Edition West Publishing Co., 2013 Supplement in process).

To be Continued ....

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BAD FAITH CLAIMS ISSUES AFTER SANDY: AND SO IT BEGINS.

          Claims handling issues are surfacing after Sandy.  In particular, the new claims handling issues raise Bad Faith issues involving Flood Insurance Policies and the National Flood Insurance Program.

          It is another measure of the storm's devastating effects that the areas in which the largest number of Flood Insurance Claims come from, are also the areas which we can reasonably and unfortunately expect to present the largest number of Bad Faith Claims too.

          Claims handling questions are reported concerning low offers to compromise large Flood damage Claims.  Policyholders have been living with the damage that Sandy caused since Sandy made landfall in October of last year.  Besides low offers of compromise, Policyholders complain that Flood Insurance Adjusters are giving little time and short attention to evaluating the Policyholders' Claims.  See Tara Siegel Bernard, "Fighting the Insurer Over Hurricane Sandy Damage" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, March 2, 2013).

          On the Insurance Coverage front, questions are being reported at the same time concerning the damaging effects of mold, and whether there is any Coverage for it.  See Sarah Maslin Nir, "Questions Emerge About the Mold That Hurricane Sandy Left Behind / Severity of Harm Remains Unclear" p. A14, col. 4 (New York Times Nat'l ed., Saturday, March 2, 2013).

          These unfortunate facts give rise to many questions which must be answered before Bad Faith Claims can arise.  Flood Insurance Policies are issued under and as part of the National Flood Insurance Program.  Are the Bad Faith Claims which follow Sandy claims handling preempted by this Federal law?

          Are the Flood Insurance Companies immunized under the National Flood Insurance Program?

          Who if anyone is subject to the applicable Unfair Claims Practices Act?  The answer to that question is important to the Flood Insurance Company, to FEMA which administers the National Flood Insurance Program, and to individual adjusters.

          Many Sandy Claims are understandably handled by Independent Adjusters hired by overwhelmed Carriers.  The Independent Adjusters also have an interest in finding out if they are potentially subject to individual liability for their Sandy claims handling.

          Some of these and similar questions have probably already been answered.  They need to be answered now, it seems, as Bad Faith allegedly follows in Sandy's wake.

 

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INDEMNITY FOR THE UNIVERSITY OF MIAMI'S ADDITIONAL INSURED DEFENSE EXPENSES: NEW FLORIDA LAW? Continued.

This is the conclusion of an article that began with the post here on Sunday, February 24, 2013.

           The dissenting Judge on this 3-Judge Panel emphasized for a good reason that there was no conflict over Insurance Coverage in this case.  In Florida, by Statute only, independent Counsel is required to be provided to an Insured under a Liability Insurance Policy only when the Liability Carrier asserts a statutory "coverage defense," meaning that the Carrier is required to provide mutually agreeable, independent counsel under the Florida Statute only when the Carrier asserts a defense to Coverage that otherwise exists.  See Fla. Stat. § 627.426.  Parenthetically, even when the Florida Statute is not complied with, the statutory sanction is that the Liability Carrier will not be permitted to raise the statutory "coverage defense" in question.

          Or, as the dissenting Judge put it in the University of Miami v. Great American case:  "Similarly in the case before us, the University of Miami has not alleged (or shown) how the disparity in potential liability between it and Magicamp affected in any way the joint defense provided it under the Great American policy."  University of Miami v. Great American Insurance Co., 2013 WL 616156 *7 (Fla. 3d DCA February 20, 2013)(Shepherd, J., dissenting).

          The Majority's holding in this case therefore appears to be based on one of two reasons.  Either the holding represents the making of new law in Florida, or it represents a determination that the Liability Carrier in the case acted in "Bad Faith".  The latter determination could not, in this case, include a failure to settle or a poorly provided defense, certainly, or either event would have been mentioned in the Majority Opinion and in the Dissent, but there is no mention of them by either the Majority or by the Dissent.  If there is a determination of "Bad Faith" inherent in the holding in this case, it therefore has to be the equivalent of a holding that the Liability Carrier in this case wrongfully refused to defend the Additional Insured-University of Miami.

          If the holding in this case represents new law in Florida,  nothing more needs to be said here.

          If the holding in this case is based on a wrongful refusal to defend, Attorney's Fees and Costs are ordinarily recoverable in such a case in Florida and in many other jurisdictions.  2 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 13:13, "Attorney's Fees--Settlement or Defense of Third Party's Claim" (THIRD EDITION WEST PUBLISHING CO., 2013 SUPPLEMENT IN PROCESS).

          In neither case does it mean that either the two Judges in the Majority were correct in their holding, or that the one dissenting Judge was correct in his dissent.  It means only that the holding was based either on making new Florida law, or on a determination that in this case the Additional Insured, the University of Miami, was wrongfully denied a defense by the Named Insured's Liability Carrier when the Carrier refused to provide the University with separate, independent defense counsel given potentially conflicting legal positions of the two Insureds, if  presented in defense to individual active negligence claims against the Named Insured and against the Additional Insured.

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UNIVERSITY OF MIAMI'S ADDITIONAL INSURED DEFENSE EXPENSES: NEW FLORIDA LAW?

          A new Florida Appellate Court decision addresses an issue of first impression:  Can an Additional Insured obtain indemnity for its own defense expenses when it hired its own defense counsel because of a perceived ethical conflict on the part of the one defense counsel retained by the Insurance Company to defend two Insureds?  In this case, the two Defendants-Insureds are the University of Miami, the Additional Insured, and the Named Insured, MagiCamp, under a Liability Policy issued to MagiCamp:  University of Miami v. Great American Insurance Co., 2013 WL 616156 (Fla. 3d DCA February 20, 2013)  [STATED SUBJECT TO REVISION OR WITHDRAWAL BEFORE RELEASED FOR PERMANENT PUBLICATION].

          This vote in this case was 2-to-1 among the three Judges on the Appellate Panel.  They all knew that this is a case of first impression.  To quote the majority:

   The precise question presented by this appeal and these facts has not been answered directly in Florida. Simply stated, the question presented is whether in this factual scenario, where both the insured and the additional insured have been sued, and the allegations claim that each is directly negligent for the injuries sustained, a conflict between the [Named] insured and the additional named insured exists that would require the insurer to provide separate and independent counsel for each. We answer the question affirmatively.

University of Miami v. Great American Insurance Co., 2013 WL 616156 *2 (Fla. 3d DCA February 20, 2013). 

          The perceived conflict was not perceived because one Defendant was an Additional Insured or Additional Named Insured, and the other was the Named Insured.  Instead, an ethical conflict was perceived by the University of Miami and the 2-Judge Majority because of the possibility  of adverse legal positions based on the facts of the underlying case in which the University (Additional Insured) and the Named Insured had both been sued for negligence:

The conflict in this case is created by the adverse legal positions one attorney must take in representing two different defendants.

 University of Miami v. Great American Insurance Co., 2013 WL 616156 *3 n.5 (Fla. 3d DCA February 20, 2013).

          The Majority did not find a conflict originating in an Insurance Coverage dispute but instead found a conflict originating from potentially adverse possible legal positions in the underlying case:

Although no question of coverage or excess policy limits, upon which to base a conflict of interest, exists in this case, since coverage has been agreed to by the parties, the pleadings and record evidence on summary judgment create a conflict, not on coverage, but on legal defenses based upon the record facts....

* * *

These allegations create diverse legal positions that are inherently adverse. These conflicting legal positions presented in defense to individual active negligence claims against MagiCamp and UM exist separate and apart from issues of coverage or excess policy limits.

 University of Miami v. Great American Insurance Co., 2013 WL 616156 *3 (Fla. 3d DCA February 20, 2013).  [Emphasis added.]

          This perceived conflict resulted in a holding new to Florida but based on the Majority Opinion's review of a Federal District Court case from Pennsylvania and two State Court decisions from Illinois and New Jersey.  University of Miami v. Great American Insurance Co., 2013 WL 616156 *2 (Fla. 3d DCA February 20, 2013).  Following what it said were the holdings in these non-Florida cases, the Majority held that the University of Miami is entitled to indemnity from MagiCamp's Liability Carrier for the University's separate defense expenses in this case:

On these facts, we believe this legal dilemma clearly created a conflict of interest between the legal defenses of the common insureds sufficient to qualify for indemnification for attorney's fees and costs for independent counsel.

 University of Miami v. Great American Insurance Co., 2013 WL 616156 *3 (Fla. 3d DCA February 20, 2013).

To be continued .....

SECRET SETTLEMENTS: THE BAD FAITH ISSUES continued.

This continues the article begun in the post here on Sunday, February 17, 2013.

           In the case in which the parties even stipulated that certain Insurance Coverage information they released in discovery could not be made known to the public or anyone else, the stipulation itself was not enough.  They would have to show "good cause" to keep the information secret under Federal Rule of Civil Procedure 26(c)(1):  "The records and decisions of the courts should be within the public's view to allow the public access to the reasoning upon which judicial decisions rest."  Kreuger Int'l, Inc. v. Federal Ins. Co., 2008 WL 5264021 *2 (E.D. Wis. Dec. 16, 2008).

          According to a Court Order opening all such materials but one to public scrutiny until the case was terminated on July 28, 2009 pursuant to a Stipulation of Dismissal filed with the Court the day before, on July 28, 2009, according to the Federal Court's online docket on PACER, the attorneys in this case requested only one item to be kept secret under the "good cause" requirement.  Kreuger Int'l, Inc. v. Federal Ins. Co. (E.D. Wis. Case No. 07-C-0736, Order entered January 26, 2009).

          Note that a recently announced settlement was reported to be confidential, in a dispute over coverage for defense legal fees between a major pharmaceutical company, and its insurer, a Zurich Group member company. The amount of legal fees incurred by the policyholder was reported to be over $400,000,000 to “defend” OxyContin product defect claims--not one of which went to trial, it was reported. Anita Raghavan & Heather Won Tesoriero, “OxyContin Maker, Insurer Settle Legal-Bill Dispute,” Wall Street Journal, Col. 1, Page A3 (Tuesday, June 13, 2006). OxyContin is a narcotic and a pain killer. In a criminal proceeding over the marketing program for OxyContin, its manufacturer reportedly will pay penalties totaling $634,500,000 after both the manufacturing company and its CEO, its General Counsel, and its former Chief Medical Officer all pled guilty and will reportedly pay differing fines or penalty amounts without receiving jail time. Heather Won Tesoriero, "OxyContin Maker Pleads Guilty” Wall Street Journal Friday, May 11, 2007 (Col. 1, p. B3).  See Storlie v. State Farm Mut. Auto. Ins. Co., 2011 WL 116881 *6 & n.3 (D. Nev. Jan. 13, 2011).

          Everything is changing.  Nothing is new.  It may be best to open settlement secrets to the public in the first place.  See also Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith §§ 3:107 & 9:28 (3d Ed. 2012, West Publishing Company;  2013 Supplement in process).

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