Claims And Issues

Massachusetts High Court Rules on Interpretation, Force of Law Issues.

   The Supreme Judicial Court of Massachusetts has ruled that a standard policy which is controlled by the State Insurance Commissioner and not by the Insurer does not lead the Court to construe ambiguities in it against the Insurer.  Download Golchin v. Liberty Mutual Ins. Co. (Mass. Case No. SJC.10794, Opinion Filed July 25, 2011) PUBLIC ACCESS, also published as 2011 WL 2937953 *3 (Mass. July 25, 2011)(authorized password required to access Westlaw).

   That is not all.  Questions frequently arise in Insurance Coverage Litigation about the weight that should be given to pronouncements of the State Insurance Commissioner.  "Merely because the commissioner is possessed of authority regarding a particular topic does not render his [or her] every pronouncement regarding that topic a regulation possessing the full force and effect of a statute."  Golchin v. Liberty Mutual Insurance Co., 2011 WL 2937953 at *6.  In that case, a bulletin issued by the State Insurance Commissioner was treated as persuasive only "(so far as it goes)," and not having the force of law, as it was not formally promulgated as a regulation or rule under the applicable Administrative Procedure Act.  Id.

   Oh, yes, something else that should not be overlooked.  The substantive issue decided in that case is interesting also.  It involved a question "whether a claimant may seek medical expense benefits under the 'medical payments' coverage (MedPay) of a standard Massachusetts automobile insurance policy (auto policy) where she has already recovered for those expenses under a separate policy of health insurance."  Id. at *1.  Liberty Mutual's motion to dismiss on that ground was granted by the Trial Court and reversed on appeal in that case.

There is little doubt that this decision will soon attract the attention of Massachusetts Insurance Coverage Lawyers.  Until then, see this June 24, 2011 post about Policy Interpretation by Nina Kallen, Esquire on Insurance Coverage Law in Massachusetts Blog.

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Adverse Selection, Tuition Refund Insurance, and Mental - Physical Health Coverage.

   According to some of those offering it, Tuition Refund Insurance is a victim of adverse selection.  Adverse selection, so this thinking goes, is a cause of offering less Coverage for Mental Health issues than for Physical Health issues.  To put it more simply, perhaps, adverse selection involves the concept that those who need the line of Insurance are mainly the ones who will buy it.  Some background is probably required in order to understand what is going on here.

   Tuition Refund Insurance has been offered for a long time.  Its purpose has always been to provide Coverage for Tuition Refunds when a student is forced to withdraw before the end of the term.  Historically, there was a difference between Claims payments for a student's withdrawal due to Physical problems vs. a withdrawal due to Mental Health issues.  Coverage was historically greater for Physical than for Mental Health issues in Tuition Refund Insurance.  The justification for the difference was said to be due to adverse selection.  See Ron Lieber, "Your Money / Tuition Refunds,  But Not Quite on Equal Terms" p. B1, col. 1 (New York Times, "Business Day" Section, Saturday, July 23, 2011).

   To their credit, private Insurance Companies reportedly have abolished any such distinction.  More in line with current thinking on the subject, they offer equality in their Coverages -- and claims handling -- of Tuition Refund Insurance with respect to Physical vs. Mental Health issues when those concerns cause a student to withdraw from a course of study and her or his tuition is not refunded.  Sometimes this thinking was apparently brought about by Court decisions, and sometimes voluntarily, but this thinking is now the norm in the private Tuition Refund Insurance Industry.  See Lieber / New York Times, supra.

  The linked newspaper report does not offer a definition of "adverse selection" as understood in the Insurance industry.  Wikipedia does offer such a definition, noting that it describes a situation where from the Insurance Company's point of view in offering Coverage, a potential Policyholder has greater information about her or his condition or status than does the Insurance Company, so that the Insurance Company generally charges a higher Premium for Coverage in these situations of different degrees of knowledge or "asymptomatic information".  See Wikipedia Definition of "Adverse Selection".

   This discussion is important because Sallie Mae apparently decided to underwrite or offer Tuition Refund Insurance that would provide lesser Coverage for Mental Health than for Physical Health.  According to its website, Sallie Mae was brought into existence  by a Federal Statute as a government-sponsored entity in 1972 but is now a publicly held, private sector corporation.  Reportedly, however, Sallie Mae is for some reason not subject to Federal anti-discrimination laws in offering Health-related Insurance Coverages.   As a result of the newspaper's inquiries, however, the New York Times reports that Sallie Mae is apparently now pursuing an offering that would treat Mental and Physical Health Coverages more or less equally.  See Lieber / New York Times, supra.

If so , Sallie Mae is welcome to the world already occupied by private Tuition Health Insurance Companies.

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Direct Action Allowed Based Only on Wisconsin "Business Operations" Coverage.

   In Download Casper v. American International Southern Insurance Co. (Wis. Case Nos. 2006AP1229 et al, Opinion Filed July 19, 2011) PUBLIC ACCESS, also published as 2011 WL 2820530 (Wis. July 19, 2011) (authorized password required to access Westlaw), the opinion of the Wisconsin Supreme Court identified three issues for the Court's consideration.  We are concerned here with the second of those issues, which the Court's opinion identified in the following terms:

    ¶ 4 Second, can the Caspers maintain a direct action claim against National Union when its policy of insurance was neither delivered nor issued for delivery in Wisconsin but the insurance policy covers the insured's “business operations” conducted in this state? Relying on Kenison v. Wellington Insurance Co., 218 Wis.2d 700, 582 N.W.2d 69 (Ct.App.1998), the circuit court and court of appeals answered “no.” In this review, the Caspers contend that a plain reading of Wis. Stat. § 631.01(1), together with Wis. Stat. § 632.24, authorizes direct action against an insurer in any of four situations stated in the disjunctive in Wis. Stat. § 631.01(1). Only one of these four situations requires delivery of the policy in Wisconsin.

Casper v. American Southern International Insurance Co., 2011 WL 2820530 at *1 ¶ 4.

   The Supreme Court overruled previous intermediate appellate court case law and held that the answer to its own question is, in this case, a resounding "yes":

¶ 8 Second, a liability insurance policy need not be delivered or issued for delivery in this state in order to subject the insurer to a direct action under Wis. Stat. §§ 632.24 and 803.04(2). Kenison is accordingly overruled, and the decision of the court of appeals on this issue is reversed.

 Id. at *2 ¶ 8.  (Prosser, J., for the Supreme Court of Wisconsin).

   The Supreme Court's decision has far-reaching implications for direct actions under similarly worded statutes in other jurisdictions.  Insurers which have issued all kinds of Insurance Policies may find themselves defending lawsuits in places they never imagined going.  Until then, keep an eye on the Wisconsin Bar Website, among other sites, such as "Legislation:  Insurance Litigation & Regulatory Law Blog" (see in particular there, this post on August 10, 2010 by James Carlyle, "The California Supreme Court Reiterates Analysis for Determining Whether a Statutory Violation Confers a Private Cause of Action") to see what others have to say about the implications of this Wisconsin Supreme Court decision.

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Hurricanes, "Hurricane Damage Insurance," Homeowners, Condominium and Homeowners' Associations.

   The differences between Insurance that might cover Hurricane Damages that is available to Condominium (and perhaps some Homeowners') Associations, on the one hand, and the "Hurricane Damages Coverage" that is available to Homeowners, are explored in a syndicated column by Richard White, "Community Living / Hurricane Damage Insurance," published this morning in the print edition on p. B9, col. 1 (Orlando Sentinel, Monday, July 18, 2011),  but not made accessible Online.  (At first, I was going to provide you with a link if I could find one elsewhere Online, but I could not find a link for this particular syndicated column.  However, here is a link to the July, 2011 edition of Florida Community Association Journal, which is entitled, "Disaster Preparedness Special".   In particular, an article which may be of interest begins on page 14, by Kathy Danforth, "Minimizing Your Disaster".  I hope these are useful to you and to your clients.)

   The biggest difference?  Insurance carried by Condominium Associations will not likely provide Coverage for personal property of Homeowners.  Only the Homeowner has an insurable interest in her or his personal property.  See id.

   This useful column also briefly addresses questions concerning FEMA and Homeowners Associations, and mobile homes, following Hurricanes.

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Bad Faith in Orlando.

   The 22nd Bad Faith Litigation Conference sponsored by the American Conference Institute will be held in Orlando, Florida.  The tentative dates for the Conference/Institute are November 30 and December 1, 2011.  The details are not yet publicly available but keep an eye for future developments on the ACI Website here.

   I have been invited to speak.  My topics will include the fact that hardly any Judge has ever declared a duty on a Liability Insurance Company in any case to offer its policy limits where the injured claimant has not made a demand or offer.  There is a generally recognized duty in certain cases, but it is definitely not a duty to "offer policy limits".

   I look forward to seeing you at the ACI in Orlando this Fall and to speaking about these and other hot issues in Good Faith.

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FAA Transfer From Hawaii to Texas ... And "Nonbinding" SIR Observations.

   In Download Lexington Insurance Co. v. Centex Homes (D. Hawaii Case No. 10.00655, Order Transferring Venue Filed June 13, 2011) PUBLIC ACCESS, also published as 2011 WL 2416473 (D. Hawaii June 13, 2011)(authorized password required to access Westlaw) the Chief Judge of the United States District Court for the District of Hawaii transferred venue to a Federal Court in Texas for the Texas Court to consider whether to compel Arbitration of an Insurance Coverage dispute.  The Chief Judge viewed her ruling as impelled by the Federal Arbitration Act ("FAA") and the parties' express Arbitration provision in their insurance contract.

    "The Policy is a 'claims made' policy ...."  Lexington Insurance Co. v. Centex Homes, 2011 WL 2414673 at * 1, *10.  Lexington issued the Policy to Centex, a builder of houses.  Centex began to receive claims from Homeowners that water was leaking in the houses that Centex built.  Lexington sued for Declaratory Relief in Federal Court in Hawaii, claiming that it had no Coverage under various theories.  Centex responded with a Motion to Dismiss and, alternatively, a Motion to Stay and to Compel Arbitration in Dallas, Texas "the forum specified by the parties' arbitration agreement."  Id. at *2.  Centex's address on the Policy is in Dallas, Texas.  Id. at *1.

   While granting Centex's Motion by transferring venue to a Federal Court in Texas where Arbitration was to take place, the Chief Judge in Hawaii did and said much more.  The Federal Court in Hawaii noted that "[t]he Policy has a self-insured retention amount ('SIR' or 'Retained Amount') of $150,000."  Id.  Lexington's Duty to Defend would not incept or begin "'unless and until the Retained Amount is exhausted'".  Id.  One of Lexington's contentions against Arbitrating at all in this case was that satisfaction of the SIR or Retained Amount was a condition precedent to Arbitration as well as to Lexington's Duty to Defend and, since the SIR had not yet been met in this case, there could be no Arbitration, Lexington contended.

   Centex did not disagree with this argument concerning Lexington's Duty to Defend under the Lexington Policy.  "Centex does not contest that it is required to meet the SIR before Lexington is obligated to defend Centex against claims."  Id. at *10.  Although the issue was not free from doubt, the Chief Judge in the Federal Court in Hawaii clearly would have had a difficult time accepting Lexington's argument had the case remained in Hawaii:

This court, while not persuaded on the present record that the arbitration provision is subject to a condition precedent that Centex prove it has expended $150,000 on the underlying claims, leaves the ultimate decision to the court in Texas.

Id. at *10.  [Emphasis added.]

   The 'nonbinding' observations about SIR provisions in this decision are likely to long outlast the transfer of this case to Texas, including that it is highly unlikely that there is a condition precedent of exhausting the SIR amount in order to Arbitrate under a Policy, even where the Duty to Defend expressly and admittedly does not incept or begin until the SIR or Retained Limit is reached.

For a discussion of related issues, see generally  Insurance Law Hawaii Blog and in particular the post there of July 11, 2011..

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Regulation of Insurance-Like Substitutes With, or Without, Insurance Experience?

   Reportedly the Commodity Futures Trading Commission is issuing regulations to rein in the use of Derivatives and in particular Credit Default Swaps.  See Ben Protess, "U.S. Regulator Adopts New Rules on Derivatives, a Key Step in a Wall St. Overhaul" p. B5, col. 1 (New York Times Nat'l ed., Friday, July 8, 2011), posted in New York Times Online in Dealbook Blog.

   This raises important questions of "who" and "what".

   "Who"--Who are the people drafting the regulations?  Do they include people with insurance experience?  Credit Default Swaps functioned like insurance.  CDS's were used to bypass State Insurance regulation.  I do not mean to say that the Federal regulators do not know what they are doing.  I am asking questions here, not making a statement.

   "What"--What exactly do these regulations do -- from the viewpoint of a person familiar with insurance regulation?  How do they operate -- in the eyes of a person with experience in the regulation of insurance?

   These and a number of other questions generated by this news can only be answered by interested, experienced insurance practitioners.  I do not mean only lawyers or insurance company representatives, although they are certainly experienced and presumably are very interested in this development.  No, I mean to include also State Insurance Commissioners, insurance defense associations, and policyholder groups of all kinds.  All are welcome to address this call for your comments.  What you think and say as an insurance practitioner is important, in this venue now, and never more so.

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Defense Duty Breach No Waiver of "Policy Defenses" in Louisiana.

   It is a troubling question.  It has perplexed many Judges and lawyers as well as Policyholders and their Liability Insurance Companies.  The question is whether, when a Liability Insurance Company wrongfully denies its Duty to Defend in a given case, it has by that denial waived its right to raise defenses to its Coverage in order to limit its extracontractual liability for all or a part of the loss incurred by the Policyholder as a result.

   The Supreme Court of Louisiana recently added its answer to this question, firmly rejecting waiver under those circumstances:

   We granted a writ application in this insurance case primarily to determine whether the lower courts erred in holding that the insurer waived its right to enforce its policy defenses because it breached its duty to defend. After reviewing the record and the applicable law, we find that the lower courts erred in holding the insurer liable for 100% of the claims asserted by the insured. In spite of breaching its defense duty, the insurer was entitled to rely on its policy defenses in limiting its indemnity obligation. Therefore, we reverse the judgment of the court of appeal on that issue and render judgment against the insurer for the proper amount due under the insurance policies. All other issues are remanded to the trial court.

Download Arceneaux v. Amstar Corp. (La. Case No. 2010.C.2329, Opinion Filed July 1, 2011) PUBLIC ACCESS, also published as Arceneaux v. Amstar Corp., --- So.3d ----, 2011 WL 2591701 *1 (La. July 1, 2011)(authorized password required to access Westlaw).

   "Policy Defenses"  was used interchangably in this Opinion with "coverage defenses".  See Arcenaux v. Amstar Corp., 2011 WL 2591701 at *6.  The "general liability insurance company" in this case specifically "disclaimed liability" (denied liability for indemnity and withdrew from the defense) for two reasons:  (1) "employee exclusions," i.e., "exclusions for bodily injury to employees of the insured arising out of the course and scope of employment" which the Insurance Company, Continental, erroneously thought was contained in each and every one of eight [8] Insurance Policies it issued, and (2)  that the Bodily Injury alleged in the Underlying Liability Claims did not take place during one or more of the Continental Policy Periods.  Id. at *1.

For an interesting take by a Policyholder Attorney on the Duty to Defend generally under Louisiana Law, see Todd A. Rossi, Esquire, "Insured's Allegations May Trigger Insurer's Duty to Defend" posted 11.04.10 on Louisiana Law Blog.

    

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Employer On-Site Health Clinics Alternative to Higher Premiums, Healthcare.

   Facing higher Premiums for Health Insurance Coverage and higher costs of healthcare, Employers are beginning to offer On-Site Health Clinics to their covered Employees.  See Duke Helfand, "More Employers Are Offering On-Site Medical Clinics" (Los Angeles Times Online, Sunday, July 3, 2011).

   If these innovations lower the costs of Healthcare, it is uncertain but these innovations should also lower the Premiums charged by Health Insurers for Health Insurance Coverage.  It is certain that if these innovations lower the costs of Healthcare, then they will also lower both the charges submitted to the Medicaid and Medicare programs and their costs.

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

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Vast Use of Words Over Healthcare Continues: Constitutional, to SCOTUS.

   In a vast trio of opinions that does not seem to have left anything unsaid, a Sixth Circuit Court of Appeals panel has continued the War of Words Over Healthcare, in Download Thomas More Law Ctr., et al. v. Obama (6th Cir. Case No. 10.2388, Opinions Filed June 29, 2011) PUBLIC ACCESS, also published as 2011 WL 2556039 (6th Cir. June 29, 2011)(authorized password required to access Westlaw).

   Two of the three Judges voted to uphold the Constitutionality of the U.S. Patient Protection and Affordable Health Care Act on the ground that Congress has power to enact it under the Commerce Clause.  This power includes Constitutional authority to impose the so-called individual mandate to purchase Health Insurance.

   However, it has not been generally reported as yet that two of the three Judges also voted to decide that the same Act is not Constitutionally authorized under Congress's Taxing Power.

   The widely shared view is that this decision is a way station on the way to Washington, D.C.'s highest court.

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