Claims And Issues

More Computer Models Print Out In Put: This Time, Coverage?

   The U.S. Senate Banking, Housing and Urban Affairs Committee is considering whether Computer Models can be used to predict how much of a Hurricane Loss is due to Wind vs. how much is due to Flood.  See Lydia Mulvaney of McClatchy Newspapers, "Models Can Determine Wind and Water Damage, Panel Told" posted in political blog on MiamiHerald.com on Thursday, June 23, 2011.

   There is a major drawback:  Bad Faith.  Although it has been held by the Courts that it is not Bad Faith simply to use Computer Models as tools to determine Coverage for all or part of a Loss, Courts have also held that Insurance Companies expose themselves to liability beyond their Policy Limits if they abdicate to Computers their responsibility to determine whether all or part, if any, of a Loss is Covered.  See the post on Sunday, June 26, 2011 on Insurance Claims and Bad Faith Law Blog where this issue is addressed, and see the related post on Tuesday, June 28, 2011.

   There is a second drawback:  These Models are not necessarily as accurate as they are advertised to be.  There is no such thing as "Garbage In, Gospel Out".  See the post on Insurance Claims and Bad Faith Law Blog on Tuesday, June 28, 2011.  The people selling these Computer Models have a right to sell us this software, if we let them, but they have no right to call their Computer Models "the Gospel Truth".

   There is a third strike:  The way in which these Models are being sold is suspicious, although it may be sincere.  Predictions by people who profit from the predictions are inherently suspect predictions, whether the predictions are made by people who will profit by selling the software or by trying to sell a lower payment.  Advertising of these particular computer programs seems often to be based on the same marketing playbook that has been used recently in financial transactions and natural gas schemes:

"They want to bend light to hide the truth."

  Anonymous retired Unocal geologist writing in a February, 2011 E-Mail "about other companies invested in shale gas," quoted by Ian Urbina, "Insiders Sound an Alarm Amid a Natural Gas Rush" p. 1, col. 5 (New York Times Nat'l ed., Sunday, June 26, 2011).

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Anatomy of an "All Risks" Property Insurance Policy.

   Interpretation of an "all risks" Property Insurance Policy can be confusing for some Courts and Counsel, given the recent development toward requiring Policyholders to "prove" Coverage under their all risks policies.

   The anatomy of an All Risks Property Insurance Policy is much simpler than that, and far different from that somewhat traditional approach to interpreting Insurance Policies generally.  All Risks Property Insurance Policies are instead interpreted beginning with their simple nature of basically providing Property Coverage for, literally, damage caused by "all risks," unless excluded.  A recent decision of a Federal Court in California repeated and applied this very simple interpretative approach, for example:

 

Ruffin Road's Policy with Travelers is what is known as an “all-risk” insurance policy, meaning that the Policy provides coverage for all risks of physical loss to the covered property except those that fall within specifically enumerated exclusions or limitations. See Garvey v. State Farm Fire & Cas. Co., 48 Cal.3d 395, 399, 257 Cal.Rptr. 292, 770 P.2d 704 (1989). Neither party disputes the fact that the Building and the pipes beneath it constitute covered property. Therefore, the question is whether one or more of the exclusions or limitations applies.

Download Ruffin Road Venture Lot IV v. Travelers Property Casualty Co. of America (S.D. Cal. Case No. 10CV11, Order Filed June 20, 2011) PUBLIC ACCESS, also published as 2011 WL *3 (S.D. Cal. June 20, 2011)(authorized password required to access Westlaw).

   Immediately after the Federal Court wrote these words, the Court granted in part the Property Insurance Company's Motion for Summary Judgment on the ground of an applicable Exclusion.  See generally John K. DiMugno, Stephen Plitt, and Dennis J. Wall, "CATClaims:  Insurance Coverage for Natural and Man-Made Disasters" §7:1, "Introduction and Interpretation" in Ch. 7, "Property Insurance Coverage Issues:  Exclusions" (West, 2011 Supplements).

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New Jersey Supreme Court Decides "Value of a Settlement" is Not ...

...Covered "Money Damages," "Loss".

   On June 21, 2011 the Supreme Court of New Jersey decided that "the value of a settlement" is not covered "money damages" unless it involves the payment of money and thus is not a covered "Loss" defined in a standard Insurance Policy Definition in Download Passaic Valley Sewerage Commissioners v. St. Paul Fire and Marine Insurance Co. (N.J. Opinion Filed June 21, 2011) PUBLIC ACCESS, also published as 2011 WL 2450937 *1 (N.J. June 21, 2011)(authorized password required to access Westlaw).

   In a common arrangement, the Insured in that case reached a Settlement Agreement in an Underlying Case.  The Insured agreed, in the settlement of the Underlying Case, "among other things, to provide in-kind services and forbear from pursuing alleged regulatory violations".  Id. at *1.  Alternatively put, the Underlying Settlement Agreement provided for the Insured to "provide services" and to "surrender assets" all "in lieu of cash payments"  [emphasis added], and it was the value of this agreement for which the Insured sought indemnity Coverage.  Id.

    In this straight-forward decision, the New Jersey Supreme Court as expected affirmed the New Jersey Superior Court Appellate Division and held that this common form of settlement agreement does not qualify as "money damages" nor as a covered "loss".  If this decision is followed outside of New Jersey, its teaching seems clear:  Include covered money damages in a settlement for which your client may seek Indemnity Coverage as a covered "Loss" under a standard Insurance Policy, or if you represent the Insurance Company be sure to contest settlement arrangements on behalf of Insurance Companies where the settlement arrangements arguably do not include covered money damages and thus no covered "Loss".

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Health Insurance Companies Decide When You Need a CT Scan.

   If you have Health Insurance Coverage through your Employer or on your own, then Health Insurance Companies decide when you need a CT Scan.  Health Insurance Policies limit the amount of payment or coverage or both.  As anyone who has submitted a Health Insurance Claim or preapproval request has learned, Health Insurance Companies will decide whether you need a CT Scan, or not.

   Physicians complain about Medicare's payment rates.  However, Medicare apparently pays for the CT Scans the physicians order.  See Walt Bogdanich and Jo Craven McGinty, "Medicare Claims Showing Overuse For CT Scanning" p. A1, col. 6 (New York Times Nat'l ed., Saturday, June 18, 2011)(using evidence available from Medicare Claims records to document apparent incidences of CT Scan "Double Images in 2008").

   We are not expected to notice the "product placement" of anti-Medicare stories, I suppose.  Who could possibly benefit from collecting Health Insurance Premiums for less coverage than Medicare provides -- and for a much greater overhead (including bonus and salary) expense than Medicare incurs?

 The Author is Co-Chair of the Health, Life and Disability Insurance Subcommittee of the American Bar Association Insurance Coverage Litigation Committee.

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Catastrophes and Cash.

   Are you and your clients prepared to access your finances when you need them most, when you may have to deal with the aftermath of a Catastrophe?  Here are some tips on protecting your finances by Eileen AJ Connelly, "Be Prepared to Protect Your Finances in a Disaster" (Copyrighted Associated Press Story published in Boston Globe Online, Sunday, June 19, 2011).

   Happy Father's Day!

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Insurance Companies Pay Chinese Drywall Settlement for Florida Homes.

   Reportedly, Insurance Companies are paying a $54,000,000.00 settlement for alleged Chinese Drywall Damages:

   Lawyers for consumers and Banner Supply [alleged seller] said today four insurers would be paying the settlement of the drywall cases, which covers as many as 700 Florida homeowners.

Phil Milford & Allen Johnson Jr., "Chinese Drywall Supplier to Pay $54 Million to Settle Homeowners' Claims" (Bloomberg.com, Tuesday, June 14, 2011).

   The reported settlement comes as something of a surprise.  The Insurance Companies for Homeowners-Plaintiffs and for Defendants in the Chinese Drywall litigation had received some favorable rulings fairly recently.  See, e.g., Download In re Chinese Manufactured Drywall Products Liability Litigation (E.D. La. No. MDL 2047, Order and Reasons Filed December 16, 2010) PUBLIC ACCESS,  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" Third Edition West Publishing 2011, § 3:112, "Chinese Drywall Damages:  Some Third-Party, Liability Insurance Coverage Issues,", and § 9:31, "Chinese Drywall Damages Claims and Property Insurance Coverage Issues and Exclusions".

   The identities of the four settling Insurance Companies have not been publicly reported.

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Fiduciary Duties of Trustees of Mortgage Loan Securitizations: ...

... The Two Attorneys General of the Two States Imposing Duties Investigate.

   Trustees of Mortgage Loan Securities, such as reportedly Bank of New York Mellon and Deutsche Bank, may have had a Fiduciary Duty to examine whether the paperwork was proper and, if not, to require that it be made proper for the protection of the Investors in the Trust.  The Securitizations were also reportedly set up mostly in New York State, and the rest in Delaware.  If so, only New York and Delaware Law would seemingly apply.  Only New York and Delaware Fiduciary Law would impose obligations of inquiry, disclosure and Good Faith and Fair Dealing, for examples.

   It is of great interest to Mortgage Investors and Trustees therefore that the New York State and Delaware State Attorneys General are investigating whether the Trustees violated any of their Fiduciary Duties at the beginning of their trust responsibilities, when they received the Mortgage Loan Securitization papers and presumably were or should have been on inquiry.  See Gretchen Morgenson, "Two States Ask if Paperwork in Mortgage Bundling Was Complete" p. B1, col. 2 (New York Times, "Business Day" Section, Monday, June 13, 2011).

 Although this news is probably too recent to draw attention on other sites, in general terms it appears to be questionable how far the Fiduciary Law of Delaware would adapt to the situation under investigation by the Attorneys General.  See generally "Delaware Corporate and Commercial Litigation Blog".  New York Law may or may not present a different story.  See also "Contracts Law Fallout From the Madoff Affair" (Contracts Prof Blog posted May 31, 2011).  In addition, see also the post here about recent Court decisions including the New Jersey Federal District Court decision addressed in the post here on May 25, 2011, "Rescission of JPMorgan Chase Mortgage Coverage:  'Materially False or Misleading'...".

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Consumers' Credit Takes Step Forward.

   The U.S. Senate protected the Rules already adopted in favor of consumers' voluntary spending in this economy.  In a step forward for consumers' credit, the Senate protected Rules that inhibit Banks and Credit Card Companies from over-charging for debit card use -- surreptitiously or otherwise.  The charges which the Rules are likely to prevent are predicted to save consumers "annual revenue" in the billions of dollars.

   For an alternate viewpoint, see Victoria McGrane and Maya Jackson Randall, "Banks Dealt a Debit Setback" p. C1, col. 6 (Wall Street Journal, Thursday, June 9, 2011)(protecting Rules will cost Banks and Credit Card Companies "billions of dollars in annual revenue.").

  The Banks for one have already made Insurance Claims upon Mortgage Insurance Policies held by defaulting Homeowners.  See Categories, "Foreclosure," "Mortgage Insurance".  Will Insurance Claims now also be made on Credit Insurance Policies?

   If Insurance Claims have already been made, and you know about them, I invite you to post a Comment here describing them.  Thank you.

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Foreclosures Overwhelming Courts: Problem No. 1, and Solutions in Good Faith.

This is the second in an occasional series of posts on this problem.  The series continues on Insurance Claims Bad Faith Law Blog today.

The effects of this systemic problem on Mortgage Insurance are among the issues to be addressed in this series.

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Frivolous Foreclosure Fraud Attempt to Overcome Courts.

    There is a business model that requires the filing of Foreclosure lawsuits, and in overwhelming numbers.  If you look in the dictionary, as they say, there is a picture of that next to the word "frivolous."

   The model on which our Court system is built requires a case-by-case determination.  (This is particularly true in an era in which class actions are disfavored.)

   Proponents of the Frivolous Foreclosure Lawsuit model know this about the Court system's model.  They know that filing Foreclosure Lawsuits in overwhelming numbers will likely make it easier for them to foreclose because otherwise their own lawsuits will threaten to overcome the Court system.

   One of Florida's responses, for example, to the filing of an overwhelming number of Foreclosure Lawsuits, was to launch a so-called "rocket docket" for them.  Foreclosure Lawsuits on the "rocket docket" would supposedly be handled quicker because retired Judges would be hired to set Hearings and resolve a greater number of Foreclosures, often in Lawsuits that were not contested.   Now, the budget for the rocket docket in Florida is reportedly coming to an end.  See "Demise of the Rocket Docket" in Beth Kassab, "What to Watch This Summer" p. 1, col. 4 (Orlando Sentinel "Central Florida Business" Section, Monday, June 6, 2011).

   It is easy to predict that with the demise of the rocket docket in Florida, whatever its shortcomings and whatever its strengths, pressure will rise on the Court system to once again resolve the "backlog" of lawsuits that will descend upon Florida Judges.  In fact, that was the reason for instituting a "rocket docket" for Foreclosure Lawsuits in the first place, to relieve the Court system of the pressure of a "backlog" of cases -- the vast majority of them being recently filed Foreclosure Lawsuits.

   If the Court system does not take measures to again accommodate them, Plaintiffs in Foreclosure Lawsuits may also attend Court-ordered Mediations without any tangible inclination to settle the Foreclosures, ask the Courts to relax evidentiary rules, to shorten Hearing times, or to reduce Notice requirements, among other things.  These things already appear to be happening in many reported cases.  There is an irony here.  Many of the Foreclosure Plaintiffs -- banks, large lenders -- object loudly to so-called "frivolous" lawsuits being filed by other people.

   In light of the current situation, I plan a series of occasional posts on the issue.  I want to reiterate how we got here, where we are now, and what can be done about this problem that affects the very existence of the System of Justice I have served throughout my professional career.

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Pennsylvania Insurance Interpretation Rules.

   The Federal Third Circuit's opinion in Download Meyer v. CUNA Mutual Insurance Co. (3d Cir. Case Nos. 09.4040, 09.4124, Opinion Filed May 26, 2011) PUBLIC ACCESS, also published as 2011 WL 2040857 (3d Cir. May 26, 2011)(authorized password required to access Westlaw) sets out and applies settled rules of Insurance Contract Interpretation under Pennsylvania Law.  They are by and large the same rules that the majority of Courts in the United States follow and apply in cases of Insurance Contract Interpretation.

   This case involved interpretation of the word, "or".  The policy term in dispute, "Total Disability," was actually defined in the Policy at issue but the Policy Definition was itself the nub of contention.   

   From the observation that "[t]he burden of drafting with precision rests with the insurance company, the author of the policy," through examinations of what constitutes "ambiguity" in an Insurance Policy, to the judicial capacity under Pennsylvania Law to "also look to the dictionary definition" of a word or term, and when, the Third Circuit touched upon many important points of Insurance Policy Interpretation in this case.  See Meyer v. CUNA Mutual Insurance Co., 2011 WL 2040857 at *7 - *8.  The Third Circuit panel also pointed out that Pennsylvania Courts apparently treat statutory interpretation differently from contract interpretation, although the Court pointed out that in this case, which turned on the meaning of the word, "or," in a Policy Definition of all things, that the Pennsylvania Supreme Court's interpretation of that word in a statutory context was "instructive."  Id. at *8.

   Here, the Federal Appellate Court agreed with the District Judge that the Insured's interpretation of the Policy's "Total Disability" provision was reasonable even if there were other, also reasonable interpretations.  "Further, under Pennsylvania law, in close cases, a court should resolve the meaning of insurance policy provisions in favor of coverage for the insured." Moreover, in the Insurance setting, a Statute mandating certain required Coverage, as here, cannot be restricted by an Insurance Policy provision (although Coverage can be expanded by an Insurance Policy Provision).  Id. at *10.

   Although the Federal Appellate and Trial Courts both agreed with the Insured's interpretation and concluded that Summary Judgment was thereby warranted in favor of the Insured, the Appellate Court also reversed the Trial Court's Permanent Injunction and Final Judgment in this case.

   This appeal was argued  for CUNA by a well-respected Florida Attorney now practicing in Washington, D.C., Roland C. Goss, Esquire.

   For a discussion of a different Insurance Policy Interpretation matter in Federal Court in Pennsylvania, but similarly involving Pennsylvania Insurance Interpretation Rules and also with statutory involvement, see Tort Talk, Category "Insurance Coverage," post of April 1,2011.

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