Claims And Issues

Replacing Cancelled Homeowners and Other Property Insurance Policies in Florida.

   Many Homeowners and some Commercial Property owners are receiving cancellation notices from their Homeowners and Property Insurance Carriers in Florida.  Mr. Tim Shaw, owner of Tim Shaw Insurance in Fort Myers, is quoted in a newspaper report providing this potentially sage advice:

   He said when looking for a new policy, a consumer should find out how much of a surplus a company has to pay claims and how many "events," such as hurricanes, its reinsurance policy will cover in a year.

Laura Layden, "State Farm Sheds 125,000 Florida Homeowner Policies, Some in Collier, Lee" (naplesnews.com, published Sunday, July 25, 2010).

   If I learn of any other way to find these things out, in addition to simply asking an insurance agent to tell me, I will post that information here, but right now I do not know of any other way to find out (1) how much surplus (reserves) is or are available to a given Homeowners or other Property Insurer, and (2) what the terms are of their Reinsurance Policies.

Dennis Wall is Co-Author of the leading book on Insurance Coverage for Catastrophe Claims, "CATClaims:  Insurance Coverage for Natural and Man-Made Disasters" (West Publishing Company 2008; 2010 Supplement in process).  Mr. Wall will speak on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010 on "Dealing With Catastrophic Disasters:  How to Properly Investigate and Handle Overwhelming Claims".

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Airline Refunds: How Travel Insurance Can Work.

   Airline refunds and how Travel Insurance can work for you and your clients are amply discussed by Mitch Lipka, "Consumer Alert/Travel Insurance Might Be Only Way to Get Airfare Refund" (Boston Globe Online at boston.com, Sunday, July 25, 2010).

   There may be a way to deal with airline company practices, and this linked article explores the potential in a Question and Answer format.

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Instead ... Was SEC (and Chair) Victorious in Settlement With Goldman?

   This post continues from July 19, 2010, "'Settle Every Case' S.E.C. Settles With Victorious Goldman:  Sacks Unopened".

   Written In the course of expressing optimism about the outcome of the Securities and Exchange Commission's upcoming consideration of "whether to require brokers to have a 'fiduciary duty' to investors," their clients, here is an alternative version of the recent SEC settlement with Goldman Sachs of misrepresentation Claims filed against Goldman by the SEC:

   The most notable enforcement case of Ms. [Mary] Schapiro's tenure can be read as an indication that she cares deeply about such issues.

   Under current law, brokers serving retail investors are held to a limited standard requiring that investments be "suitable" to the buyer.  But brokers for institutional investors have not faced even that minimal rule.  That freed brokers to let clients view them as trusted advisers when pitching an investment.  If and when the product blows up, the broker disclaims any responsibility for the bad investment decision made by the customer.  The broker was simply a "counterparty" who took the other side of a trade that the customer wanted to do.

   That essentially was Goldman Sachs's defense when the commission filed suit against it over a disastrous mortgage-backed securities deal that Goldman sold without telling customers that it had been partly created by the firm that wanted to bet it would fail.  Goldman's settlement helps to establish a precedent that such sophistry must end.

Floyd Norris, "Perfect For a Job She Created" p. B1, col. 1 (New York Nat'l ed., "Business Day" Section, Friday, July 23, 2010).

  Such sophistry most certainly must end, but even the SEC's Inspector General reportedly does not take an optimistic or positive view of whatever "precedent" was established in the SEC's recent settlement with Goldman.  See Edward Wyatt, "Inquiry Begun of S.E.C. Timing in Goldman Fraud Case" p. B3, col. 3 (New York Times Nat'l ed., "Business Day" Section, Saturday, July 24, 2010).

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FDIC Contemplates Tying Premiums to Risk in Executive Pay Packages.

   The Federal Deposit Insurance Corporation is considering tying Insurance Premiums to "the perceived risk of their [i.e., banks'] executive pay packages."  Eric Dash, "Federal Report Faults Banks on Huge Bonuses/Feinberg is Said to Call 80% of Pay Unmerited" p. A1, col. 2 (New York Times Nat'l ed., Friday, July 23, 2010). 

   "That proposal could be reviewed by the agency's board as early as next month."  Id.

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BP Oil Spill Claims: Coming, Yet to Come, and Covered?

   Florida has thanks be to God not yet been physically overwhelmed with the BP oil spill like Louisiana, Alabama and Mississippi.  Not yet.  The Damages Claims have come nonetheless.  More are on the way.

   Claims for Damages as a result of the BP Oil Spill Catastrophe, without manifest physical damage at this time, include and future Claims reportedly will include Claims for Damages such as:

• Hotels which have lost reservations in Florida compared to past years.
• Real estate brokers who have lost commissions on sales and rentals.
• Suppliers of tourist industry businesses in Florida, such as "food wholesalers" and "pest control companies, for hotels who were scaling back orders."
• A restaurant in Madeira Beach and other points on the Florida Gulf Coast.

See Steve Huettel, "Area Hotels Wonder if Claims From BP Oil Spill Will be Paid" (St. Petersburg Times Online, Saturday, July 24, 2010).

Dennis Wall is Co-Author of the leading book on Insurance Coverage for Catastrophe Claims, "CATClaims:  Insurance Coverage for Natural and Man-Made Disasters" (West Publishing Company 2008; 2010 Supplement in process).  Mr. Wall will speak on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010 on "Dealing With Catastrophic Disasters:  How to Properly Investigate and Handle Overwhelming Claims".

Please Read The Disclaimer. 

Textbook Appeal: Plaintiff's Verdict on Negligence Claims -- Except No Experts?

   The appeal on behalf of Colonia Girls Softball League is close to my heart.  I have been a Volunteer Softball Umpire for a local Little League since Moses was a baby.  The appeal in the case of St. George v. Colonia Girls Softball League, OFFICIALLY UNPUBLISHED OPINION but published as 2010 WL 2795330 (N.J. Super. App. Div. July 16, 2010)(Westlaw subscription required to access Westlaw) also offers a textbook example of how to appeal a Plaintiff's Verdict on Negligence Claims -- except no Experts were proferred for the Defendant in the Trial Court, which adversely (from the Girl Softball League's point-of-view) affected the outcome of the appeal.

   Ms. Dori St. George was walking her dog when she slipped and fell on a rock on a sidewalk in or near a construction area.  She sued Colonia Girls Softball League on account of her resulting injuries.  Ms. St. George advanced two theories of Negligence:  (1) the rock she slipped on was a hazardous condition and (2) construction tape was removed from the area and construction was not yet completed there.  St. George v. Colonia Girls Softball League, 2010 WL 2795330 at *7.

   As to Ms. St. George's first theory of Negligence liability, "[a]n essential element to imposition of liability on a possessor for a hazardous condition of its property is that it had notice of the hazardous condition."  Id. at *8.

   Although the Plaintiff testified that she slipped on a rock, neither she nor her Expert Witness, one Saxon, could say how the rock actually got there.  At the time of her accident, Ms. St. George was on premises occupied by the Girls Softball League for practices and games.

   One Teddy Markou was "the League volunteer in charge of construction and preparing the fields for softball games," id. at *1, and "Markou testified at trial that he spent fifteen to thirty hours per week volunteering for the League."  He was in charge of constructing a pavilion for concessions at the site, and the pavilion was 85% completed on the day of Ms. St. George's accident.  "None of the work to be done involved the use of rocks.  Most of the work was done on Saturdays, and before any work was done, they would put garbage cans in the grass and put up caution tape.  Nothing was ever left up overnight;" including the caution tape and barricade.  Id. at *3.

   Specifically regarding rocks on the sidewalk, the only occasion over the years to see them, Markou testified, was when "[t]he younger siblings of softball players would pick up rocks from the grass and parking lot, and they could have thrown them on the sidewalk.  The League always cleaned up and broom swept everything after a game."  Id.

   Moreover, none of the witnesses who testified, except Ms. St. George, testified that they saw any rocks on the sidewalk on the day of Ms. St. George's accident -- and neither she nor her Expert Witness could testify where rocks might have come from or why the Girls Softball League should be responsible for them, specifically, how or when the Girls Softball League had notice of the alleged hazardous condition.  "As a result," the Appellate Court held, "the issue should not have been submitted to the jury."  Id. at *8.

   However, the Girls Softball League chose not to put on an Expert Witness of its own at Trial.  Mr. Saxon, the Plaintiff's Expert Witness, testified without contradiction that a "causation" of Ms. St. George's injury was premature removal of caution tape at a construction site where construction had not been completed.  Id. at  *2.  Therefore, there was sufficient evidence in the record to uphold the Plaintiff's verdict on this theory.  However, the Appellate Court held, "[b]ecause we do not know whether the jury found liability based on the alleged failure to remove the rocks or on the League's alleged failure to maintain the construction tape until all construction was completed, the issue of liability must be retried with the proofs limited to the latter theory."  Id. at *8.  [Emphasis added.]

    The appeal on the "hazardous condition" theory of Negligence liability was textbook, given the record of this case at Trial.  However, that same record revealed the complete absence of any rebuttal Expert Witness Testimony, for whatever reason, on the Plaintiff's other theory of Negligence Liability, which involved the premature removal of the caution tape.  With the only Expert Witness Testimony on that issue coming from one side of the case, the outcome on appeal was affected -- as it often is in even more complex cases such as those in which Claims of Bad Faith are presented.

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"Consent Not to Execute" Means No Damages, Court Holds.

   The South Carolina Supreme Court has held that "a covenant not to execute" given by a Third-Party Injured Claimant eliminated the element of Damages for certain resulting causes of action, in Fowler v. Hunter FREE LINKED ACCESS TO OFFICIAL REPORTER, also published as 2010 WL 2813326 (S.C. July 19, 2010)(Westlaw subscription required to access Westlaw).

   One of the resulting causes of action at issue in Fowler v. Hunter was an assigned "professional negligence" cause of action held by the insureds against their agent or broker (the opinion is unclear whether Insurance Associates was the insureds' agent or broker).  The other cause of action at issue was "equitable indemnification" by Selective Insurance Company against Insurance Associates.  Both causes of action required the element of Damages, and after the following "covenant not to execute" and related agreements were entered into by the various parties, there were no recoverable such Damages, the Supreme Court of South Carolina held in this case:

   Notably, the Fowlers [injured claimants] signed a covenant not to execute against the Hunters [the defendants-alleged tortfeasors-insureds] and GOA ["Gynecological Oncology Associates"].  The Hunters and GOA also assigned to the Fowlers their professional negligence claim against Insurance Associates.  Selective and the Fowlers agreed to cooperate in the pursuit of the professional negligence and equitable indemnification actions.  Furthermore, they agreed to equally split the costs and potential proceeds realized from these causes of action.

Fowler v. Hunter, 2010 WL 2813326 at *2.

The modern effects of Covenants Not to Execute, Consent Judgments, and other forms of Settlements by Insureds with Injured Claimants on subsequent actions for alleged Bad Faith are examined by Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §§ 3:45, 5:9, 5:29, and 5:45 (Shepard's/McGraw-Hill First Edition, West Publishing Company Second Edition and 2010 Supplement).

Please Read The Disclaimer.

Civil Remedy Notice Without Amount, Can Still Satisfy Statute: Court.

   In Florida, a so-called "Bad Faith Statute" requires a Civil Remedy Notice of Insurer Violation as a condition precedent.  Fla. Stat. § 624.155(3) (2009).

   Following settled Florida case law, a Federal Court held in a First-Party case that failure to state a specific cure amount in what the Court called a "CRN" is not required in order to meet the Florida Statute's requirement of "specificity."  Royal Marco Point I Condominium Ass'n v. QBE Insurance Corp., Download Royal Marco Point I Condominium Ass'n v. QBE Insurance Corp. (M.D. Fla. Case No. 2.07cv16, Memorandum Opinion Filed July 13, 2010)FREE ACCESS DOWNLOAD also published as 2010 WL 2757240 *3 (M.D. Fla. July 13, 2010)(Westlaw subscription required to access Westlaw).  The Federal Court in that case denied the Defendant Insurance Company's Motion to Dismiss and its Motion for Summary Judgment.

   In following this settled Florida rule of law, the Federal Court in this case joined a growing number of Courts and cases in both Third-Party and First-Party situations, which have addressed issues of the sufficiency of Florida Civil Remedy Notices of Insurer Violations in defense of alleged Statutory Bad Faith Claims.  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §§ 5:1 (Introduction to Third-Party Insurer's Defenses, including to Alleged Statutory Bad Faith in Settlement), 5:23 (Introduction to Liability Insurer's Defenses, including to Alleged Statutory Bad Faith Claims in Failing or Refusing to Defend), 5:36 (Introduction to Defenses Raised by Liability Insurers in Alleged Inadequate Defense Cases) , 11:1 (Including Defenses to Alleged Statutory Bad Faith in First-Party Cases) (Shepard's/McGraw-Hill First Edition, West Publishing Company Second Edition and 2010 Supplement).

Please Read The Disclaimer.

FDIC Sues Officers of Subprime Lender to Recoup D&O Coverage ...

   ... Newspaper reports.

   Someone with decision-making authority at the Federal Deposit Insurance Corporation understands Insurance.  The FDIC has sued the former president and CEO, the former Chief Lending Officer, the ex-Chief Credit Officer, and the onetime Chief Lending Officer of the Homebuilder Division of former Mortgage Lender IndyMac for $300,000,000.00.  In a "309-page lawsuit," the FDIC has alleged "negligence" on the part of the Defendants in "granting loans to home builders who were unlikely to repay the debts."  E. Scott Reckard, "FDIC Sues Former Executives at IndyMac's Homebuilding Loan Division," July 12, 2010 post on Money & Company Blog on Los Angeles Times Online. 

   The FDIC took over IndyMac in July, 2008 when IndyMac melted down in a huge bank failure.  The FDIC now clearly wants its payouts of Federal Taxpayer money back.

   "The lawsuit targets the four mid-level managers in an attempt to recover damages from insurance policies covering their actions at the company."  Id.

Recoupment by D&O.  Interesting concept.  Particularly for Federal Taxpayers and their Federal agencies that paid Taxpayer money on account of the Great Collapse through which we are now living.  The progress of this case bears watching -- especially by Directors and Officers Liability Insurance Carriers.

Please Read The Disclaimer.

"Settle Every Case" S.E.C. Settles With Victorious Goldman; Sacks Unopened.

   This updates a series of posts.  A representative post was written in this space on April 22, 2010 entitled, "'Who's in Charge, Me or the SEC' Asks Goldman ... No Longer Sure of the Answer." It is sure now.

   The S.E.C., as expected, did not overcome its fear of trying cases and settled, again.  See Graham Bowley, "With Token Settlement, Blankfein Unscathed" p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Friday, July 16, 2010). 

   Goldman settled for what it agreed to call a "penalty" in the amount of $550,000,000.00.  "The penalty amounted to about 15 days of profits."  Julie Creswell, "Goldman Was First, Maybe Last"  p. B1, col. 6 (New York Times Nat'l ed., "Business Day" Section, Saturday, July 17, 2010), published online with a different title, "After Goldman's Concession, Regulators May Be Satisified".  With a 3-to-2 vote, the S.E.C. Commissioners agreed to accept the settlement recommended by its chief "enforcer".  Louise Story, "S.E.C. Panel Was Divided on Goldman Case" p. B4, col. 3 (New York Times Nat'l ed., "Business Day" Section, Saturday, July 17, 2010).

   On the same day, A.I.G. agreed to settle a securities class action in Ohio for $725,000,000.00.  "Taken together with earlier settlements, A.I.G. will ladle out more than $1 billion to Ohio investors, money that will go to firefighters, teachers, librarians, and other pensioners." Michael Powell and Mary Williams Walsh, "A.I.G. to Pay $725 Million in Ohio Case" p. B1, col. 6 (New York Times Nat'l ed., "Business Day" Section, Saturday, July 17, 2010).  

   What accounts for the difference in the two settlement amounts?

   One difference is that the Ohio Case was brought by the Ohio State Attorney General.  "State attorneys general often have proved more aggressive than federal regulators in going after financial houses in the wake of the 2008 crisis."   Michael Powell and Mary Williams Walsh, "A.I.G. to Pay," New York Times, supra.

  The far lesser results achieved by the Settle Every Case or SEC "enforcer" who settled with Goldman, on the other hand, have drawn their own reaction at the SEC:  He is in line for a promotion.  See  Louise Story, "The Generals Who Ended Goldman's War" p. 1, col. 2 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, July 18, 2010).

   Old saying:  "Everything is changing, nothing is new."

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Wind Insurance Claim, Hurricane Ivan, Home Destroyed: Insurance Coverage Issues.

   In 2004, Hurricane Ivan destroyed Mr. and Mrs. Hamilton's mobile home in Milton, Florida.  The Hamiltons made a Flood Insurance Claim on their Flood Insurance Policy, which was paid on the basis of a covered "flood loss".  Mr. Hamilton returned a sworn Proof of Loss to the Hamiltons' Flood Insurance Company that "he was claiming under the policy for the full value of the home and its contents, based on the 'flood loss' of September 2004."  Citizens Property Insurance Corp. v. Hamilton, Download Citizens Property Insurance Corp. v. Hamilton (Fla. 1st DCA Case No. 1D09.4128, Opinion Filed July 7, 2010) also published as 2010 WL 2671808 *1 (Fla. 1st DCA July 7, 2010)(Westlaw subscription required to access Westlaw; STATED NOT RELEASED FOR PUBLICATION IN PERMANENT LAW REPORTS AND SUBJECT TO REVISION OR WITHDRAWAL).  The Flood Insurance Claim was paid for the mobile home.  (The Hamiltons sustained losses to other structures which are not the subject of this post, although they were involved in other parts of the decision than those commented on here.)

   The Hamiltons thereafter filed a Wind Insurance Claim.  A flood of Insurance Coverage Issues ensued.  Among them, the Florida Appellate Court first dealt with Citizens' argument that it should have been allowed to put on evidence of the amount of the Flood Insurance payment.  (The Trial Court permitted Citizens to put on evidence that there was Flood Coverage, that there was Flood Damage, and that the Hamiltons made a Flood Loss Claim on their Flood Insurance Policy, "except as to dollar amount."  Hamilton, 2010 WL 2671808 at *3.)   Citizens was thus arguing that it should have been allowed to put on evidence of the amount of the Flood Insurance Claim despite the Collateral Source Rule.

   "As applied, the common law collateral source rule militates against evidence of the dollar amount of flood insurance payments, disbursed by an entity wholly independent of appellant, under a plainly distinct contractual obligation, and paid for entirely by premiums remitted by the Hamiltons, Accordingly, we find no abuse of discretion in the ruling on this matter."  Id. at *4.  [Emphasis added.]  The Appellate Court pointed out that with respect to this 2004 loss, "under the statute in effect at the time of the loss, the common law collateral source rule had not been legislatively altered.  See § 627.702(1), Fla. Stat. (2004)."  Id.  Section 627.702(1) has since been legislatively altered:  See Fla. Stat. § 627.702(1) (2009).

  Another Insurance Coverage Issue of interest in this case involves determining an "actual total loss" vs. a "constructive total loss".  "A building is considered an actual total loss, under the identity test, if it 'has lost its identity and specific character as a building, and becomes so far disintegrated, it cannot be possibly designated as a building, although some part of it may remain standing.  [Citation omitted.]  '[A] building is considered a constructive total loss when the building, although still standing, is damaged to the extent that ordinances or regulations in effect prohibit the building's repair, such that the building has to be demolished.'"  Id. at *5.  [Emphasis added.]  In this particular case, the Appellate Court held that the Trial Court's ruling on "the constructive total loss instruction" was not error and, even if it was error, Citizens was not prejudiced by it here.

   A third and final Insurance Coverage Issue of interest involves the Appellate Court's rejection at common law of a doctrine legislatively enacted, at least in part, into the relevant Statute:  the total loss recovery rule.  "The total loss recovery rule is a theory of damages based on indemnity principles, limiting an insured's recovery as between two or more insurers to the pre-loss value of the subject structure."  Id. at *7.  The Florida Appellate Court pointed out in its Hamilton decision that Florida Courts had rejected this rule before, and it rejected it at common law again, in this case.  In an echo of its ruling on the Collateral Source Rule, the First District held in this case:  "Accordingly, where the covered peril causes a total loss, the insurer has no equitable plea to reap a windfall from, in effect, a total set-off for unrelated insurance payments."  Id. at *8.

   The Florida Legislature's subsequent limited enactment of "the total loss recovery rule" did not affect the outcome in the Hamilton case:  "That the Legislature in 2005 amended the VPL [Florida's Valued Policy Law] to incorporate the spirit of the total loss recovery rule further supports our conclusion that this doctrine was not previously part of our canon of common law.  See § 627.702(1)(b),  Fla. Stat. (2005)....  In light of these decisions and the subsequent amendment to the VPL, we find no error in the court's refusal to apply the total loss recovery rule."  Id.   Here is a link to the current version of the Statute cited by the Hamilton Court.

   In many respects, losses incurred from Hurricanes in 2004 -- which included Hurricanes Charley, Frances and Jeanne, in addition to Ivan -- swept legislation into place in 2005 which had not previously existed in Florida.  The outcomes of decided cases may be different since then if the statutory changes apply to the given loss.

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Premiums Based on Credit Scores OK, Court Says...

   So, Not Bad Faith?

   A majority of the Michigan Supreme Court in a confusing cluster of opinions apparenty resulting in a 4-to-3 decision, has ruled that in Michigan at least, Insurance Companies can base their Premium Rates on applicants' credit scores.  The use of credit scores that are contained ordinarily in credit reports (called "insurance scoring" in the opinions) to calculate Premiums is not affirmatively prohibited by the Michigan Insurance Code, the Michigan Supreme Court ruled in this case.  Download Insurance Institute of Michigan, Hastings Mut., Farm Bureau Gen., Frankenmuth Cas., et al v. Commissioner (Mich. Consol. Case Nos. 137400 and 137407 Opinion Filed July 8, 2010).  Accordingly the use of credit scores or "insurance scoring" is permissible to calculate Premiums for many different types of Insurance Policies in Michigan.

   The decision is the subject of reporting by Ed White for the Associated Press in a copyrighted story, "Court:  Insurance Rates Can Reflect Credit Scores" (published in Washington Post Online, Thursday, July 8, 2010).  The AP report quotes a spokesperson for the Insurance Institute of Michigan, one of the named Plaintiffs and an insurance industry trade association, to the effect that this decision is good for Policyholders in their opinion.

   One case, especially one decided by one vote, does not necessarily make a trend.  On the other hand, the issue of underwriting Insurance Policies based on credit reports is far from resolved.  The effects on increasing Premiums are potentially enormous.  See generally Associated Press Copyrighted Story Published in the Los Angeles Times Online, "More Americans' Credit Scores Sink to New Lows" (latimes.com, Monday, July 12, 2010). 

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Court: Agent, Broker No Duty to Recommend Higher, Different Coverages.

   In a recent case, the Supreme Court of Louisiana has unanimously decided "that the insurance agent/broker had no duty to recommend coverage amounts or to determine whether the client is underinsured; rather the client had a duty to determine the amounts of coverage needed and to review the policy upon receipt to determine that those needs are met, and thus, we reverse the lower courts' rulings."  Isidore Newman School v. J. Everett Eaves, Inc., 2010 WL 2723704 *1 (La. July 6, 2010)(Westlaw subscription required to access Westlaw).  [Emphasis added.]

   That lawsuit involved one "Cornelius 'Hap' Crusel ('Crusel'), an insurance broker with J. Everett Eaves, Inc. ('Eaves'), [who] sold property and casualty insurance to Isidore Newman School ('Newman') from 1989 until 2005.  Every year, Crusel provided a written 'Insurance Proposal' when he met with Newman's business managers to discuss coverages and renew the policy."  Id. 

   So far, a well-known story.  In 2005, Hurricane Katrina struck Louisiana and caused "major damage" to the Newman School.  The damage included "a very substantial loss of tuition revenue/income for the school year 2005-2006, totaling approximately $3,166,606.00."  Newman's applicable policy limit was $350,000.00.  Id.  Thereafter Newman sued Eaves and Eaves' errors and omssions insurer, Westport Insurance Corporation, alleging duties and breaches concerning the Coverages obtained by Newman through Crusel and Eaves.

   As noted, the Louisiana Supreme Court reversed the lower Louisiana courts in this case, and in its decision favorable to Crusel and Eaves, wrote the following unanimous conclusion:  

   After considering the record and jurisprudence, we conclude that the lower courts erred in holding that the insurance broker or agent owed a duty to advise the client as to the amount of insurance coverage to obtain.  An agent has a duty of "reasonable diligence" to advise the client, but this duty has not been expanded to include the obligation to advise whether the client has procured the correct amount or type of insurance coverage.  It is the insured's responsibility to request the type of insurance coverage, and the amount of coverage needed.  It is not the agent's obligation to spontaneously or affirmatively identify the scope or the amount of insurance coverage the client needs.  It is also well settled that it is [the] insured's obligation to read the policy when received, since the insured is deemed to know the policy contents.

   For the foregoing reasons, we conclude Defendant did not breach a duty owed to Newman.

Id. at *7.  [Emphasis added.]

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Supremes Outsung by States in Singoff of Alleged Low Practices?

   It appears that many huge corporations are turning away from Supreme- Court-impeded lawsuits in Federal Court to a different venue:  State Courts.  See Gretchen Morgenson, "Fair Game/Bypassing a Federal Roadblock" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, July 11, 2010).

   Ms. Morgenson's report illustrates the reported trend with a recently filed lawsuit in Massachusetts State Court.  The lawsuit, which arises out of the current Great Collapse was proximately caused or that at least the claimed Damages in that lawsuit were proximately caused, by misrepresentation.  Cambridge Place of Investment Management of Concord, Massachusetts is the Plaintiff "against 15 banks, accusing them of abetting a fraud."  Id.  Credit Suisse, JP Morgan Chase, Bank of America, Barclays, Citigroup, Countrywide, Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan Stanley and UBS are identified as being among the Defendants in that case.

   The complaint apparently provides some detailed allegations, going beyond anything resembling mere "notice pleading":

   Interviews in the complaint with 63 confidential witnesses turned up such gems as Fremont Investment & Loan, which had been based in California, approving loans for pizza delivery men with reported monthly incomes of $6,000, and management at Long Beach Mortgage, also in California, directing underwriters to "approve, approve, approve."

Id.

   If investment banks and commercial banks and any other underwriters of such practices anticipate an end to the Great Collapse, this lawsuit just may test the degree of their commitment:

   If trust in capital markets is to return, investors must be able to believe what they read in prospectuses.  Without that minimum standard, how can Wall Street expect the markets to function again?

Id.

   And how can Wall Street expect Insurance Companies to pay Claims where their Insureds allegedly did not meet that minimum standard but apparently instead may qualify in at least some of these situations, for examination of whether such Exclusions as the Intentional Acts Exclusions in their Insurance Policies, by whatever name, apply to the Claims against them?

Please Read The Disclaimer.  Author's Request for Assistance:  I have searched the Internet high and low, without sucess, for a copy of the complaint referenced in the linked newspaper report.  I have sent an EMail to the attorney described in that report as the author of the complaint.  If anyone has access to that complaint, I would very much appreciate receiving a copy for review.  Thank you.

Postscript of Wednesday, July 14, 2010:   I have received a prompt Reply from one of the attorneys whose names are on the Complaint in the posted lawsuit.  The New York Times has also posted a copy of the Complaint in that case.  Here is a copy of the Complaint, 234 pages including its Exhibits:  Download Cambridge Place Investment Inc. v. Morgan Stanley & Co., et al. (Mass. State Ct., Suffolk County, Case No. 10.2741, Complaint Filed 07.09.10).

BP Oil Explosion in Perspective: Likelihood is Second Place.

   In an age of lists and opinions, the BP Oil Explosion "is likely to be the second-biggest energy insurance loss based on current estimates," it is reported by Kevin Crowley and Gavin Finch, "Lloyd's CEO Sees Insurance Coverage for Rigs Rising 30% AFter BP Oil Spill" (Bloomberg.com, Friday, July 9, 2010).  [Emphasis added.]

   This information requires a closer look.  After a second look, it is clear that this estimate is of an "energy insurance loss based on current estimates," not any and every insurance loss, ever.

   The BP Fiasco is actually headed way beyond "energy" insurance losses. based on current estimates.  It is headed toward Claims being made on all types of Insurance Policies that boldly go where the numbers of Claims have not gone before, so to speak.

Dennis J. Wall is Co-Author of "CATClaims:  Insurance Coverage for Natural and Man-Made Disasters" (West Publishing Company with 2010 Supplement).

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One Bankruptcy Judge to Decide BP Fiasco Insurance Coverage Issues?

    Recent newspaper reports reflect anxiety over an unlikely possibility:  that BP will file for Bankruptcy.  BP's exposure to many Damages Claims of many kinds may force it to seek reorganization under the U.S. Bankruptcy Code, it is reported.  See, for example, John Schwartz, "Weighing the Possibility of Bankruptcy for BP/Liability Claims Expected to be Enormous" p. A11, col. 5 (New York Times Nat'l ed., Saturday, July 10, 2010).

   If BP filed for Bankruptcy in the United States, then under the U.S. Bankruptcy Code and established practice, the many Insurance Coverage Issues arising out of the Drilling Explosion Fiasco may well be decided by one (Bankruptcy) Judge.

   However, why must BP file for protection from creditors and Claimants in the United States?   Perhaps it will seek that protection in the Courts and Laws of the United Kingdom.  It used to be called "British Petroleum" for a reason.

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UPDATE MEDIATOR INFORMATION: Residential Mortgage Foreclosure Mediations: Wealthy Strategic Defaults.

   This post provides newly received information in an Update of the post here on Mediation of Residential Mortgage Foreclosures and the information available on the role of strategic defaults, on Wednesday, July 7, 2010.

"The rich are different; they are more ruthless."

Sam Khater, Senior Economist at Core Logic, quoted by David Streitfeld, "Biggest Defaulters on Mortgages Are The Rich" p. A1, col. 3 (New York Times Nat'l ed., Friday, July 9, 2010).

   Any concern with so-called "strategic defaults" needs to take this statistic into account to be realistic:

   Homeowners with Million Dollar Mortgages, of which there are apparently quite a few, plan and act out their strategic defaults at a rate of about 2-to-1 compared to people who owe lesser amounts of money on their mortgaged homes.

   It appears that these "wealthier" Homeowners are not deterred by accusations of moral depravity or by threats that the Lender will pursue them for the amount they owe beyond the value of the house the Homeowners leave behind in their strategic defaults.  See David Streitfeld, "Biggest Defaulters on Mortgages Are The Rich" p. A1, col. 3 (New York Times Nat'l ed., Friday, July 9, 2010).

   These are things which Mediators need to be aware of, before attempting to conduct successful Mediations of Residential Mortgage Foreclosures in such cases.

Please Read The Disclaimer. 

Fairly Apportioning Covered and Noncovered Claims Settled by the Insured.

   In Westchester Surplus Lines Insurance Co. v. Maverick Tube Corp., Download Westchester Surplus Lines Insurance Co v. Maverick Tube Corp (S.D. Tex. Case No. H.07.540, Mem and Order Filed June 28, 2010)(FREE ACCESS) also published as 2010 WL 2635623 (S.D. Tex. June 28, 2010)(Westlaw subscription required to access Westlaw), the Federal Court in Texas squarely confronted the rule of law that a Policyholder-Insured must "allocate" its settlement of underlying liability claims "between covered and noncovered claims" when seeking its money back under its Commercial (or "Comprehensive") General Liability Policy from its CGL Carrier.  In particular, the Federal Court said that it was following Missouri law which, consistent with the law in many if not all other U.S. jurisdictions, requires that settlements by Insureds which encompass both covered and noncovered claims "'must be fairly apportioned between the two.'"  Maverick, 2010 WL 2635623 at *7.  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 13:3, "Compensatory Damages--Amount of Settlement of Third Party's Claim" (Shepard's/McGraw-Hill First Edition; West Publishing Company Second Edition and 2010 Supplement).

   The Maverick Court's treatment of this issue is instructive.  The Court looked behind any argument that the Insured's settlement was subject to apportionment because theoretically it could have included noncovered claims.  The Insured's Settlement Agreement recited 'that it was in satisfaction of 'all' potential claims."  Id. at *8.  The Court rejected this argument.

   Instead, the Court repeatedly pointed out that "[n]othing in the record supports" that argument, that "[i]jstead the record supports" the Insured's argument in that case that no noncovered claims were or could have been settled in that particular case, and in sum that "[t]he record provides no basis to find that [the Insured's] settlement extended to uncovered losses or to impose any duty to segregate covered losses from uncovered losses."  Id.  [Emphasis added.]

   Speculation can run rampant but evidence is required.

Please Read The Disclaimer. 

Per-Occurrence Self-Insured Retention: Cause vs. Effect "Occurrence" Determinations.

   In Westchester Surplus Lines Insurance Co. v. Maverick Tube Corp., Download Westchester Surplus Lines Insurance Co v. Maverick Tube Corp (S.D. Tex. Case No. H.07.540, Mem and Order Filed June 28, 2010)(FREE ACCESS), also published as 2010 WL 26335623 (S.D. Tex. June 28, 2010)(Westlaw subscription required to access Westlaw), a Federal Judge in Texas applied Missouri -- and Texas -- rules of law to determine the number of "occurrences" for purposes of a Self-Insured Retention.

  Determining this issue "would reduce [the Policyholder's] recovery because of the per-occurrence self-insured retention".  Maverick, 2010 WL 2635623 at *1.  The Federal Court noted that the parties agreed that Missouri law governs that question in this case.  "The parties also agree that Texas law is consistent with Missouri law on this issue and serves as a useful supplement to the relatively few relevant Missouri cases."  Id. at *4.

   The Federal Court discussed the cause vs. effect split of authority in determining the number of "occurrences" under a Commercial (or Comprehensive) General Liability Policy in this country.  The Federal Court concluded that Missouri State Courts appear to follow "a 'cause' approach to determine the number of occurrences.  Under this approach, 'an insured's single act is considered the accident from which all claims flow.'"  Id. at *5.  "This approach contrasts to the 'effect' analysis used in some jurisdictions.  Under the 'effect' analysis, the focus is on the number of injuries resulting from the act, not on the number of acts by the insured."  Id. 

   Using a "cause" analysis, then, the Federal Court concluded in this case that "the property damage in the present case arose out of a single manufacturing defect and the manufacturer is the insured."  Id. at *6.  Therefore there was but one "occurrence" for purposes of the Insured's per-occurrence Self-Insured Retention.  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:103, "Self-Insured Retentions:  When and What Duties, if Any, of Good Faith and Fair Dealing" (Shepard's/McGraw-Hill First Edition, West Publishing Co. Second Edition and 2010 Supplement).

   The Maverick Court also addressed, separately, the equally important Insurance Coverage issue of allocation or apportionment of Covered vs. Non-covered Losses in an Insured's own settlement of claims against it, for which it seeks Coverage and payment from its CGL Carrier.  That equally important issue will also be addressed in a separate post.

Please Read The Disclaimer.

Mediation of Florida Residential Mortgage Foreclosures Taking Effect.

   Mediation of Florida Residential Mortgage Foreclosures is taking effect.  In some Florida Counties, such as Pinellas and Pasco, mandatory Mediation is already in effect for Homesteads, i.e., where the Homeowner lives in the home.  See Editorial, "New Foreclosure Mediation Program is Win-Win For Homeowners, Taxpayers" (St. Petersburg Times Online, Friday, July 2, 2010).

   As Lenders increasingly take possession of more and more Foreclosed Properties which simply cannot be sold, nor sold at anything like the vanished balance of the Foreclosed Mortgage, the price seems to be rising for so-called "strategic defaults," or defaults planned by the Borrower who owes more on the Mortgage than the Property is worth.  Mediators in Residential Mortgage Foreclosure cases in any State or other jurisdiction will want to have available perhaps a list of resources for uninformed Borrowers who may think that they do not face any downside risk other than impairing their Credit.  The price now includes not only impaired Credit, but "[t]he lender could sue you for the balances you owe....  You may want to talk to an attorney familiar with debtor protection in you state (a bankruptcy attorney might be a good choice) to get an assessment of your risk."  Liz Pulliam Weston, "What Landlords Risk by Abandoning Mortgages" (latimes.com, Sunday, July 4, 2010).  See also Adam Geller, Associated Press copyrighted story, "Finding Gold in Them Thar Foreclosures" (Washington Post Online, Sunday, July 4, 2010).

   "Homeowners in volatile boom-and-bust states such as California and Florida have been especially prone to walk away from deeply negative equity situations."  Kenneth R. Harney, "Lenders' Focus Turns to Strategic Defaults" (latimes.com, Sunday, July 4, 2010).  This linked report mentions a couple of results of a study funded by the Federal Reserve Board that we already knew, but here they are:

1.  Strategic defaults have geographic implications, meaning that there apparently tend to be a greater number of strategic defaults in places like "California and Arizona, where state law limits lenders' ability to collect post-foreclosure deficiencies on principal residence mortgages," unlike other states "such as Florida and Nevada, where lenders face fewer restrictions."  Id.  It is not reported how this finding squares with the fact that Florida has one of the greatest numbers of strategic defaults, but there you are.

   The highly paid Fed researchers conclude from this that "'borrowers may factor into the costs of default the potential legal liabilities resulting from a foreclosure.'"  Id.  [Emphasis added.]  In other words, Borrowers contemplating not paying off a Mortgage balance that is far greater than a house is worth, may know that they live in a State that affords them certain protections if the Lenders come after them for more than the house.  Duh!

2.  "The Fed researchers [also] concluded that the depth of borrowers' negative equity positions is an important tripwire to their decision to send back the keys."  Id.  "The more people owe, the more they are likely to walk away," is not a revelation.  Let alone one to pay Taxpayer money for.

Mediators in Residential Mortgage Foreclosures will be sure to want to know these things for a good and productive Mediation.

P.S.

Residential Mortgage Foreclosure lawsuits have apparently had little or no effect on luxury vacation housing projects, however.  "Walt Disney Co. this morning [June 23, 2010] officially unveils its plans to begin building luxury vacation homes on its land near its Orlando theme parks."  Robert Trigaux, Venture Blog on St. Petersburg Times web site, post of June 23, 2010 entitled, "High Risk (Or Insanity) Lurking in Orlando's Luxury and Stratospheric Housing Markets?"

Please Read The Disclaimer.

  

 

Health of Federal Healthcare Reform Law in Federal Courts?

   Two lawsuits draw attention here.  One was filed in Federal Court in Florida, and the other was filed in Federal Court in Virginia.  Both lawsuits were filed on March 23, 2010 to challenge the recently enacted Federal Healthcare Reform Law. They share some similarities but there is a huge difference between them.

   Both of the lawsuits examined here, were filed in order to challenge the validity of the Patient Protection and Affordable Care Act, or "PPACA" or "ACA" depending on which party in which case refers to it.  A Motion to Dismiss supported by a Memorandum of Law is pending in both cases, both asserting two grounds for dismissal:  (1) Lack of Federal subject-matter jurisdiction, Fed. R. Civ. P. 12(b)(1) and (2) Failure to state a claim upon which relief can be granted, Fed. R. Civ. P. 12(b)(6).

   Lack of standing seems to be the only ground for dismissal reported in many newspapers.  However, there are grounds other than lack of standing asserted in both cases.  These include that the claim is not ripe and many, many asserted reasons that the operative complaints in both cases fail to state a claim upon which relief can be granted.  (The Florida Federal Case, see below, also includes an argument for Dismissal based on "The Anti-Injunction Act".)  Both Memorandums in support of the two Motions to Dismiss in both cases, in addition, tend to go beyond supporting grounds for dismissal and proceed directly to presenting arguments on the merits as though the Motions to Dismiss were really Motions for Summary Judgment. 

   One of the two lawsuits under discussion was filed in the United States District Court for the Northern District of Florida.  There is now an Amended Complaint, filed on May 14, 2010 in 34 pages.  Here is a FREE DOWNLOAD:  Download State of Florida, etc., et al v. United States Dep't HHS.Kathleen Sebelius, etc., et al (N.D. Fla. Case No. 3.10cv91, Amended Complaint Filed 05.14.10).  There are currently 15 State Attorneys General who are Plaintiffs, plus 5 alleged State Governors-Plaintiffs, and 3 additional Plaintiffs, 2 of whom are individuals.  It is a hefty pleading.  The first 20 pages read like a press release, probably to be expected given the identities of the Plaintiffs in this case.

   The six operative Counts begin on page numbered 21.  They include alleged "unconstitutionality" because the PPACA allegedly exceeds Congress' authority under the Commerce Clause or the Tax and Spending Clause and/or the Ninth and Tenth Amendments; the Due Process Clause and the Fifth Amendment; "violation of constitutional prohibition of unapportioned capitation or direct tax"; "coercion and commandeering as to Medicaid" and also "as to Healthcare Insurance"; and interference with States' sovereignty and the Ninth and Tenth Amendments, again.    Here is a copy of the original complaint, filed as noted above on March 23, 2010, also a FREE DOWNLOAD as are all the other pleadings linked in this post:  Download State of Florida, etc., et al v. United States Dep't HHS.Kathleen Sebelius, etc., et al (N.D. Fla. Case No. 3.10cv91, Complaint Filed 03.23.10).  Parenthetically, aside from being smaller, the original Complaint differs from the current Amended Complaint in that there were originally no individual Plaintiffs.

   Here, too, are copies of the Motion to Dismiss the Amended Complaint, and a 79-page Memorandum in Support of that Motion to Dismiss, both filed on June 16, 2010:  Download State of Fla., etc., et al v. Dep't HHS, etc., et al. (N.D. Fla. Case No. 03.10cv91, M.Dismiss Ad. Complaint Filed 06.16.10) and Download State of Fla., etc., et al v. Dep't HHS, etc., et al. (N.D. Fla. Case No. 03.10cv91, Memo.M.Dismiss Ad. Complaint Filed 06.16.10).  The Memorandum in particular appears to be unnecessarily long.  A Court will have to pull out the grounds, if any, for a Rule 12(b)(6) Motion to Dismiss (and good luck with that, as they say); it is  not at all clear why Defendants in that case argue that the Amended Complaint fails to state a claim upon which relief can be granted.

     One difference between the two lawsuits comes clear immediately after reviewing their online dockets on Pacer.  In the Virginia case, the Commonwealth of Virginia is the Plaintiff and it is represented by the State Attorney General's Office.  The Secretary of Health and Human Services is the sole Defendant, and she is represented by the United States Attorney's Office in the Eastern District of Virginia where the suit was filed, as well as by attorneys from the Department of Justice.  In the Florida case, there are many Plaintiffs, most of whom are State Attorneys General and presumably capable of arguing a case.  Instead they are represented by large private law firms who are presumably billing on the basis of their presumed expertise.  It will be interesting to compare the rulings in these two cases.

   There is no ruling yet in either case.  Here is a FREE DOWNLOAD copy of the Complaint:    Download Commonwealth of Virginia v. Sebelius (E.D. Va. Case No. 3.10cv188, Complaint Filed 03.23.10).  it is clearly written by practicing lawyers.  Its one Count or Claim is for Declaratory Relief that the PPACA violates the Commerce Clause, and stating why.  Here are copies of the Motion to Dismiss and of the 52-page document filed as a Memorandum in Support of the Motion to Dismiss:  Download Commonwealth of Virginia v. Sebelius (E.D. Va. Case No. 3.10cv188, Motion to Dismiss Filed 05.24.10) and  Download Commonwealth of Virginia v. Sebelius (E.D. Va. Case No. 3.10cv188, Memorandum in Support of Motion to Dismiss Filed 05.24.10).  In this case, the presiding Federal Judge has already entered an Order setting a Hearing on Motions for Summary Judgment -- which as of the date of this post have not yet been filed, but for which the Court has ordered the parties "to set their own briefing schedule" so long as all briefs are filed 14 days before the Hearing date of October 18, 2010.

   It seems unlikely, at best, that "mere" Motions to Dismiss will decide either of the two cases under review here.  To the contrary, the parties, their varying numbers of lawyers, and the Courts in both cases seem primed to go straight to Summary Judgment Motions.  Trials may be unnecessary beyond that.

The author is Co-Chair of the American Bar Association Subcommittee on Health, Life and Disability Insurance of the Litigation Section.

Please Read The Disclaimer.

Who Fleeced the Fiduciaries? AIG's "Unknown Claims" Release ...

... Could be Worthless Paper.

   This post continues issues under exploration begun on Wednesday, June 30, 2010 in a post entitled, "Fed Demanded Secret Waiver Immunity by AIG:  Bad Faith Too?"

   In a stunning revelation, two highly respected New York Times reporters recently wrote that AIG gave a secret Release to its counterparties who received 100 cents on the dollar in Federal Taxpayer Money during the Great Bailout.  See Louise Story and Gretchen Morgenson, "Documents on Bailout of A.I.G. Show How Big Banks Benefited" p. A1, col. 1 (New York Times Nat'l ed., Wed., June 30, 2010).  They expressed concern that AIG's secret Release might include fraud claims and all other grounds for getting that money back.  Their concerns, though of legitimate concern to  nonlawyers, are almost certainly misplaced.

   I had a very hard time finding the Release provision in question.  This is not unusual, perhaps, since those who did not release the documents until after they received a Congressional subpoena, did not intend to make it simple to find, exactly.

  I finally found the Release provision on the New York Times web site, although that was not easy, as I say.  There is a link to it in this passage from third page of the online version of the New York Times article:

The legal waiver barring A.I.G. from suing the banks was not in the original document that regulators circulated on Nov. 6, 2008 to dissolve the insurer’s contracts with the banks. A day later a waiver was added but the Congressional documents show no e-mail traffic explaining why that occurred or who was responsible for inserting it. The New York Fed declined to comment.

However when I found it I could not print it at first.  Having printed it -- I still do not know how -- I cannot link to it, but I can reproduce it here from very tiny print (so if there are errors in transcription, that is one of the reasons why):

  (b) Releases.

***

   (ii) With effect from and including the Termination date and in consideration of the mutual representations, warranties and covenants contained in this Termination Agreement and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by each of the parties), each of AIG-FP and AIG, Inc., for good and valuable consideration, the sufficiency of which it hereby acknowledges, forever releases the Counterparty (including all of its past and present parent companies, subsidiaries, divisions, affiliates, joint ventures, predecessors, successors, transferees, assigns, subrogees, insurers, co-insurers, reinsurers, servants, attorneys, partners, principals, members, directors, officers, employees, stockholders, owners, representatives and anyone claiming by or through them) from any and all Claims and Unknown Claims of any nature whatsoever that AIG-FP or AIG, Inc. ever had, now has or can, shall or may have, by reason of any matter, cause or thing occurring from the beginning of the world to the Termination Date that arises out of or in any way relates to the CDS Transactions.  For the avoidance of doubt AIG-FP is not releasing any Claims or Unknown Claims related to any derivative transaction other than the CS Transactions.

***

   (v)  "Unknown Claims" means any claim that the Counterparty AIG-FP or AIG, Inc. does not know or even suspect to exist in its favor at the time of this Termination Agreement, which, if known, may have affected its decision to enter into this Termination Agreement.  The parties understand that they may have suffered damages that are unknown to them at present and that they may suffer unknown damages in the future.  The parties acknowledge that any actions taken in consideration of this Termination Agreement are intended to and in fact do release and discharge any and all claims, whether known or unknown, suspected or unsuspected, contingent or noncontingent, which now exist or have existed upon any theory of law or equity, regardless of whether or not the law recognizes the existence of such claims or rights of actions [sic] as of the date of this Termination Agreement.

[Emphasis added.]

   This language is certainly broad.  See in particular the underscored language in the above quotation from AIG's secret Release.  It is also a legal over-reach.

   To begin with, by its own terms it is limited in effect to "claims or rights of" action "as of the date of this Termination Agreement."  This is reinforced by the underscored language in the Release that it is effective "from and including the Termination Date".   It has been held that similarly "unambiguous language of the release does not include [a] bad faith claim" accruing after the end-date set forth in the Release.  Plumbing Service Co. v. Travelers Casualty & Surety Co., Download Plumbing Service Co. v. Travelers Casualty and Surety Co. (Fla. 5th DCA Case No. 5D06.1586, Opinion Filed Aug. 24, 2007)(NO CHARGE FOR ACCESS) also published as 962 So. 2d 1056, 1056-58 (Fla. 5th DCA 2007)(subscription required to access Southern Second).  In that case, in which prevailing principles of document interpretation were applied to a purported Release of commercial claims, it was held that a sub-subcontractor's Statutory Bad Faith Claim against a surety under Fla. Stat. § 624.155, was not thereby released.  The Florida Court held that under the clear language of the Florida Statute, the Bad Faith Claim did not accrue against the surety until the time expired for the surety to cure any alleged violation which the sub-subcontractor set forth in its statutorily required Civil Remedy Notice of Insurer Violation.

   Moreover, the language of "Unknown Claims" is over-reaching.  The language of that definition is broad, obviously intentionally so, but it is not likely to be given literal effect as a matter of law prevailing almost everywhere in this country:  "That is, for the Releases to be valid, they must have been knowingly and voluntarily made and procured in good faith."  Allapattah Services, Inc. v. Exxon Corp., 188 F.R.D. 667, 685 (S.D. Fla. 1999), aff'd with opinion, 333 F.3d 1248 (11th Cir. 2003), aff'd in other part with opinion, 545 U.S. 546, 125 S. Ct. 2611 (2005)(subscription required to access these reporters).  In the Exxon case, the Federal District Judge examined the similar legal requirements applicable to such Releases under the Uniform Commercial Code and in the laws of Arkansas, California, Colorado, Florida, Indiana, Maryland, Montana, Nevada, New Jersey, New Mexico, Pennsylvania, Tennessee, and Washington State.  Exxon, 188 F.R.D. at 683 & n. 25.

   The validity and effect of the secretly kept AIG Release of Counterparties, which was unearthed by New York Times reporters Louise Story and Gretchen Morgenson, are unlikely to be accepted at face value by the Courts in the United States.

Please Read The Disclaimer.

 

  

UPDATE on "Federal Insurance Regulation? What Regulation?"

   This updates a post from July 1, 2010, "Federal Insurance Regulation?  What Regulation?"

   The U.S. House of Representatives has passed the pending compromise Conference Committee version of the "Dodd-Frank Wall Street Reform and Consumer Protection Act".  The compromise Act would, if approved by the U.S. Senate when it reconvenes on and after July 12, 2010, make a new first-of-its-kind "Federal Insurance Office" or "FIO".  Arthur D. Postal, "House Establishes Federal Insurance Office" (P&C National Underwriter online, Thursday, July 1, 2010).

   The FIO has the reported backing of the Insurance Industry, exemplified by the American Insurance Association, and the National Association of Insurance Commissioners.

   It is further reported that under the measure the FIO "will have no regulatory authority, but it will have the power to monitor all activities related to the business of insurance except for health insurance and long term care insurance."  Id.

   Old sayings apply:  Everything is changing, nothing is new, and nobody knows anything yet.

Please Read The Disclaimer.

Can Waiver Make Coverage? Wrongfully Denied Defense Raises Fact Issues.

   In a case involving a Wrongful Denial of Defense under a Directors and Officers Liability Insurance Policy, a Federal Court held that there was a question of Waiver which should be resolved by a Jury as a question of Fact -- even if Insurance Coverage was constructed in the process which was expressly excluded under the Policy.  California Dairies, Inc. v. RSUI Indemnity Co., Download PUBLIC FREE ACCESS California Dairies, Inc. v. RSUI Indemnity Co. (E.D. Cal. Case No. 1.08cv00790, Opinion Filed April 16, 2010) also published as 2010 WL 1541230 (E.D. Cal. April 16, 2010)(Westlaw subscription required to access Westlaw).

   The D&O Carrier denied a duty to defend but its Disclaimer Letter apparently left out another reason for denying all Coverage under the D&O Liability Policy.  Exclusion Number 7 was the unmentioned basis for Denial under that Policy and which was at issue in that case.  California Dairies, Inc. v. RSUI indemnity Co., 2010 WL 1541230 at *4.  Under California substantive law, as in many other jurisdictions, the Courts follow a "general rule" that a Denial of Coverage on one ground does not make for a waiver of other grounds not mentioned in the Denial or Disclaimer Letter.  However, California Law adds the caveat that the general rule applies "'absent clear and convincing evidence to suggest otherwise'".  Id. at *11.

   The Federal Court held that under California law, the Insurance Company's Motion for Judgment on the Pleadings itself called for denial.  "[T]he operation of implied waiver is a question of fact that cannot be decided on the pleadings, but rather suggests factual development, even if the waiver sought would create coverage where coverage is expressly excluded by the insurance contract."  Id. at *16.  [Emphasis added.] 

  The burden of proving Implied Waiver of bases for Coverage Denials which are not mentioned in Insurance Disclaimer Letters, by clear and convincing evidence or otherwise, may be imported by other jurisdictions if this line of case law is extended even more.  Until then, this development is at rest in the California Dairies case for now.  The Pacer Online Docket reflects that a 33-page Order was entered on June 25, 2010 Granting the Defendant Insurance Company's Motion for Summary Judgment on all Claims which remained against it in that case.  Download FREE PUBLIC ACCESS California Dairies, Inc. v. RSUI Indemnity Co. (E.D. Cal. Case No. 1.08cv00790, Memorandum Decision Granting Def's MSJ).

Please Read The Disclaimer. 

UPDATE on Health Insurance Risk Pools.

   This updates Tuesday's post, "Federal-State Health Insurance High-Risk Pools:  A Mixed Bag".

   The Federal Government has installed a web site for you and your clients to locate instructions about how to sign up for Health Insurance Risk Pools, including applications to sign up if you live in a State that is accepting applications:  www.healthcare.gov.  It is reportedly due to become operational on the date of this post, July 1, 2010.  I tested this link while writing this update, and I found the link operational when I tested it.

   However, all the web links in the world may not speed up enrollment.  Again, resources are available to you and your clients to search your State's level of receptivity to the Health Insurance High Risk Pool and they are identified in Tuesday's post here.  They include, for example,  www.naic.org to search the site of the National Association of Insurance Commissioners, and www.floir.com to search the Florida Insurance Commissioner (Office of Insurance Regulation) site in particular.

  Approximately "29 states and the District of Columbia" will reportedly begin enrollment in August, if then.  The remaining 21 States reportedly will begin enrollment sooner than that, these being the States that have asked the Federal Government to run the Health Insurance High Risk Pool in their States:  "Administration officials said people who apply by July 15 will begin receiving coverage by Aug. 1."  Noam N. Levey, "'High-Risk' Pool Medical Insurance Program Set to Begin" (latimes.com, Thursday, July 1, 2010).

Please Read The Disclaimer. 

Federal Insurance Regulation? What Regulation?

   Many words have been written about whether or not we will soon become witnesses to Federal Regulation of Insurance.  Any Insurance.  Or all Insurance of a certain kind.

   It appears that reporters are sifting through many pages of legislation.  Perhaps legal commentators will help the focus, and the insight.

   Time will tell. In the meantime, the Conference Committee version of Financial Legislation pending in the United States Congress may have some effects on Insurance Regulation by the Federal Government, if enacted into law:

   In one major change, the legislation provides for a council of regulators that would have the ability to wind down financial institutions that end up in trouble and that are deemed "systemically significant"--such as insurance companies.

Nathaniel Popper and Walter Hamilton, "Financial Reform Pack Wouldn't Change Wall Street Much" (latimes.com, Friday, June 25, 2010).  [Emphasis added.]

   See also Bob Graham, "Financial Services Reform Bill Loosens Regulatory Grip on Insurance" (Insurance & Financial Advisor, ifawebnews.com, Friday, June 25, 2010).

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