Claims And Issues

Title Insurance Coverage for Access to Lake Michigan.

   Title Insurance Policy Exceptions were at issue in Plastow v. Lawyers Title Insurance Corp., 2011 WL 6370570 (W.D. Mich. December 20, 2011), Download Plastow v. Lawyers Title Insurance Corp. (W.D. Mich. Case No. 1.10cv703, Opinion Filed December 20, 2011) PUBLIC ACCESS.  The Federal District Judge applied the law which is generally applicable to interpreting Insurance Policies, and held in favor of Coverage under the Title Insurance Policy at bar.

   Mr. and Mrs. Plastow owned property with access to Lake Michigan since 1980.  At first, they built a summer cottage on the Property, which they used until 2006.  In 2006, they began using the Property as their primary residence and in 2007 they completed construction and took occupancy of a new house on the Property.  Id. at *2.  Back when they bought the Property in the first place -- the Title Insurance Policy at issue bears a "'Date of Policy'" of December 18, 1979 -- the Plastows bought Title Insurance from the Defendant, Lawyers Title.  Id. at *1.  As is usual and ordinary, this particular Title Insurance Policy contained certain stated "exceptions" to Coverage.  Id. at *2.

   Over time, local inhabitants of a subdivision called Timberlane Terrace used the beach which the Plastows thought they owned exclusively.  In 2008, one of the Timberlane Terrace property owners wrote the Plastows a letter asserting rights to use the beach.  The Plastows sent this letter to the Title Insurance Company and demanded both a defense and indemnity.  Defendant acknowledged receipt of the information but stated no position on Insurance Coverage.  Id. at *3.  Making a long story short, so to speak, some Timberlane Terrace property owners retained an attorney who sent the Plastows a letter.  Thereafter, the Plastows sued all 87 Temple Terrace property owners asserting exclusive rights to the beach on Lake Michigan.  Twenty-five of the defendants from Temple Terrace counterclaimed against Mr. and Mrs. Plastow, who again put the Title Insurance Company on notice.  Once again the Plastows demanded a defense and indemnity.  This time, the Title Insurance Company denied all Coverage, not because the claims from Temple Terrace were not covered in the first place, but because of two of the exceptions in this Title Insurance Policy.  Id. at *5.

   In an interesting application of Insurance Policy rules of interpretation, the Federal Court treated the exceptions as Exclusions are treated under Michigan Insurance Law:  These Title Insurance Policy exceptions were not "clear or specific" and Exclusions which are not clearly and specifically stated raise doubts about their application which, under Michigan law, are to be resolved in favor of the Policyholders.  Accordingly, in this case the Federal Court declared "as a matter of law" that neither exception applied to exclude the Defendant's Duty to Defend or its Duty to Indemnify, and held that the Plastows' Motion for Partial Summary Judgment should be granted accordingly, and further held that the Defendant was guilty of a Breach of Contract.  Id. at *9 - *11.  The Federal Judge concisely summarized her holding in this case as follows, as the Court entered Judgment for the Plastows:

     In sum, the claims asserted against Plaintiffs by the Timberlane Terrace property owners were covered by the general terms of the Policy, and the coverage was not negated by the coverage exceptions on which Defendant relies.

Id. at *10.

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D&O Wars II.

"Instead of an attack on the 1 percent, let's call it an attack on the very productive."

Max Abelson, "Bankers Join Billionaires to Debunk 'Imbecile' Attack on Top 1%" (Bloomberg Online, Tuesday, December 20, 2011), quoting what is described as a current Director [Chairman of the Board] and a former CEO of BB&T Corporation, "the ninth-largest U.S. bank".  [Emphasis added to quotation.]  The individual is also a current "Distinguished Professor of Practice" at Wake Forest.

   Some Directors and some Officers are very productive in producing D&O Claims at this time.  See generally "D&O WARS:  CORPORATE SHAREHOLDERS PAY PREMIUMS; DIRECTORS, OFFICERS DO NOT," posted here on December 21, 2011.  Without the unfortunate conduct of some Directors and some Officers before and during the Great Economic Fiasco through which we are all now living, there would definitely be many fewer opportunities for Courts to decide D&O Insurance Coverage issues. 

HAPPY HOLIDAYS TO ALL, AND TO ALL A HAPPY NEW YEAR!

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D&O WARS: CORPORATE SHAREHOLDERS PAY PREMIUMS; DIRECTORS, OFFICERS DO NOT.

 

Underwriting vs. Claims, again.

    Directors and Officers Insurance Premiums are paid by their corporations.  That of course means that D&O Premiums are really paid by the Shareholders.  See Louise Story, "Ex-Bank Executives Settle F.D.I.C. Lawsuit" (New York Times Online, December 13, 2011).

   D&O Policies are Liability Insurance Policies of course.  D&O Policies provide Insurance Coverage for Defense and Indemnity.  Directors' and Officers' Defense Fees are paid as they are incurred.  The effect is that covered Directors and Officers hire large law firms to provide them with the best possible defense.  See the list of counsel representing the Defendant Officer in Federal Deposit Insurance Corp., as Receiver for Indymac Bank, F.S.B. v. Perry, 2011 WL 6178544 (C.D. Cal. December 13, 2011), Download FDIC as Receiver for Indymac Bank, FSB v. Perry (C.D. Cal. Case No. 11.5561, Order Denying Defendant's Motion to Dismiss, Filed Dec. 13, 2011) PUBLIC ACCESS.  Parenthetically, this is not a guarantee of success on the merits.  See id. at *2-*4 (Motion to Dismiss of Defendant Officer, based on California Business Judgment Rule or "BJR," was denied because, as the Court pointed out in its opinion, the California Business Judgment Rule "does not apply to corporate decisions of officers in California," no case has ever applied it to officers under California law, and California statutes on the Business Judgment Rule expressly apply to directors without conferring BJR protection on corporate officers at all).

   In yet the latest visible manifestation of a sometimes covert war between Underwriting and Claims, some Insurance Companies are marketing D&O Coverage to apply to "clawbacks," i.e., to claims for "the return of money people never should have received."  Reuters Breaking Views, "Pushing Back on Clawbacks" p. B2, col. 1 (New York Times Nat'l ed., "Business Day" Section, Tuesday, December 20, 2011), published in an edited version online with the headline, "Pushing Back on Clawbacks".

   It seems that there is an available argument that Public Policy should prohibit Insurance Coverage for the underlying acts that result in the clawback claims.  Since the Financial Institutions, Reform, Recovery and Reinforcement Act of 1989 ("FIRREA") provides for clawback claims in cases of "gross negligence" and in cases subject to State causes of action at least equal to "gross negligence," whatever the State causes of action may be labeled and even if the State claims are simply labeled as "negligence," see F.D.I.C. v. Perry, 2011 WL 6178544 at *1 n.1, it seems that Public Policy may be involved to raise an argument against providing the perpetrators with Insurance Coverage against clawback claims.

   This may not mean that Insurance Companies will not necessarily pay Defense or Indemnity expenses for clawback claims, however.  See Reuters Breaking Views in the New York Times of Tuesday, December 20, 2011, supra:  "And courts have ruled that insurance covering similar kinds of improper payments isn't enforceable.  But if insurers want to pay, there's nothing to stop them.  Most have agreed generally not to challenge reimbursement."

      In the end, unfortunately, Underwriting may still insist on marketing the "clawback coverage".

 

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"Put Your Hands Up, Or ... We'll SETTLE!" Not Hardly, Pilgrim.

   The Securities and Exchange Commission "enforcement chief" says settlements leave your client better off than what they could get if they went to Trial.  Edward Wyatt, "House Panel to Examine Settlements By S.E.C." p. B6, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, December 17, 2011), quoting "Robert Khuzami, the S.E.C.'s director of enforcement".  That is true only when you lose at Trial all the time.

   Anyone who has actually litigated cases knows that you settle when the risks to your client are greater than the chances of recovery.  No active practitioner ever consistently recommends settlements of potentially successful lawsuits because the amount of the settlements is equal to the amount or as much as your clients could get if they went to Trial.

   Evidence of this truth is clear.  Private lawsuits against "banks" return far more money than settlements negotiated by the S.E.C. and other currently staffed Federal agencies.

   What Insurance Coverages such lawsuits will trigger is even now  being litigated, along with the lawsuits themselves.  The plaintiffs are voting with their filing fees that they will be made whole faster and more efficiently by doing the recovery actions themselves, you might say: 

   If the bank settled with the investors using the same loss ratio that was applied in the Bank of America settlement [of a lawsuit filed by private investors], it would cost JPMorgan about $1.9 billion.  Still the bank would have other exposure outstanding.  JPMorgan faces about $31 billion in class-action cases, according to McCarthy Lawyer Links, a legal consulting firm.

   Elizabeth Nowicki, a professor of securities law at Tulane University and a former lawyer at the Securities and Exchange Commission, said that the efforts by investors might turn out to be the costliest and most important way that banks are held accountable for their mortgage security creations, because the push for accountability is coming from bank clients.  For instance, in the one mortgage security case the S.E.C. has brought against JPMorgan, the bank settled the allegations in June for $153.6 million.

Louise Story, "Investors Scrutinizing JPMorgan's Mortgages" p. B1, col. 6 (New York Times Nat'l ed., "Business Day" Section, Saturday, December 17, 2011).

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Link to Good Cavalcade of Risk Postings 146!

   There is a collection of excellent posts on risk in general, and many on Insurance in particular, at 146 Cavalcade of Risk.  Enjoy your internet research and reading!

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Why Medical Loss Ratios Matter.

   Under the new Patient Protection and Affordable Care Act and its Regulations which are being finalized at this time, Health Insurance Companies must spend a minimum of 80% of their payments on actual Health benefits for Medical Care for sick Insureds.  That is the Medical Loss Ratio.  If Health Insurance Companies covered by the Act and its Regulations spend less than the Ratio of  Benefits to so-called Administrative Expenses or Overhead, they will have to rebate Premiums to Policyholders. 

   Medical Loss Ratios clearly matter.  The way they work is explained further in an excellent post by Bruce Japsen on Prescriptions Blog on the New York Times website, "Final Rules Set for Insurers on Spending Ratios," posted on December 12, 2011.

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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Late Notice Defense of Excess Carrier to Hurricane Claim Rejected.

   Banta Properties, Inc. is a property management company.  It purchased Primary Property Insurance Coverage from General Star and Excess Coverage from Arch Specialty.  The Arch Specialty Excess Policy was 'following form,' i.e., it followed the forms of the underlying General Star Policy and provided the same Coverage except on an Excess basis in this case.

   Immediately after incurring damage from Hurricane Wilma on or about October 24, 2005, Banta gave notice to General Star and filed a claim with General Star for Property Damage Coverage.  Banta Properties, Inc. v. Arch Specialty Insurance Co., 2011 WL 5928578  *1 (S.D. Fla. November 23, 2011),  Download Banta Props., Inc. v. Arch Specialty Ins. Co. (S.D. Fla. Case No. 10.61485, Order Denying Defendants MSJ Entered Nov. 22, Filed Nov. 23, 2011) PUBLIC ACCESS.  In March, 2008, General Star "tendered the policy limits of $2.5 million under that [General Star] insurance contract".    Banta then "filed an insurance claim against Arch for its excess coverage."  Id.

   Arch reserved rights to deny all Coverage.  In pertinent part, Arch asserted "prejudice" from late notice of Banta's Hurricane Claim.  With its reservation of rights in place, Arch inspected the properties.  Banta filed a Proof of Loss.  Arch did not pay.  Banta filed suit against Arch for Declaratory Relief and for alleged Breach of Contract.  Arch defended and filed a Motion for Summary Judgment based on late notice of Banta's Hurricane Claim.

   The District Court summarized Florida law concerning late notice under an insurance policy.  Florida law raises a rebuttable presumption of prejudice to the Insurance Company from late notice.  As noted, the presumption of prejudice from late notice is rebuttable.  Id. at *2.

   The District Court thereafter discussed two ways in which an Insured may rebut the presumption of prejudice "to survive a motion for summary judgment.  First, an insured may rebut the presumption by showing that another insurer using competent individuals made a complete investigation of the claim.  [Citation omitted.]  Second, an insured may show that the insurer had access to 'substantial information' regarding the claim, creating an issue of fact of whether the delay prejudiced the insurer."  Id. at *4.

   Here, General Star as the Primary Carrier thoroughly investigated Banta's Hurricane Damage Claim.  To say again, Arch was Banta's Excess Carrier.  Nonetheless, Arch retained consultants to inspect the properties where Banta claimed that it had incurred Damage.  Banta "also provided evidence" that Arch's inspectors/consultants inspected Banta's properties but that they did not inspect many of the items of Damage claimed by Banta or review any repair invoices for already completed repairs.  Further, "Arch's consultants stated that they did not review any documents from General Star's investigation record, so these consultants never saw the photographs or reports made by General Star's several consultants [record references omitted]."  Id. at *2.  [Emphasis added.]

   On this record, Arch, the Excess Carrier, filed a Motion for Summary Judgment based on late notice.  Arch argued in support of its motion that in this case, Banta's notice of loss to Arch was untimely as a matter of Florida law.  The District Court held that Banta's notice to Arch did not fall into that category in this case based on past case law, but that, even if it did, Florida law even then provides for a rebuttable presumption of prejudice from the late notice.  In this case, Banta had rebutted the presumption.  Arch's Motion was denied.  Id. at *4.

 

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Current Computer Models Predict Premium Increases, Not Hurricanes.

   Hurricanes are not the only Catastrophes.  Today is Pearl Harbor Day.  Remember Pearl Harbor and remember, too, that everyone's life is entitled to respect if only because all our lives, already too short, are every one subject to unexpected Catastrophes and losses.

    The role that computer models play in current Insurance Premium Rate Requests is again being looked at.  This is a recurring, if sporadic, occurrence.  See, for example, the post here on June 29, 2011, "More Computer Models Print Out In Put:  This Time, Coverage?"

   The Massachusetts Attorney General's Office sent a letter to the Massachusetts insurance rating bureau on November 17, 2011.  In it, the A.G. pointed out her position that "faulty computer-generated hurricane models have contributed to unnecessarily high home insurance rates for property owners across [Massachusetts]."  Mark Alan Lovewell, "A.G. Faults Hurricane Models For Inflating Homeowner Insurance Rates" (Vineyard Gazette, published online on Friday, December 2, 2011).

   Although the A.G.'s letter itself does not seem to be on the A.G.'s website, a Press Release dated November 17, 2011 is accessible there.  In it, the Massachusetts Attorney General makes clear both that transparency does not exist in making these computer models, and that accumulated actual evidence is ignored in the input into these models.  These are real problems for homeowners who must pay higher Premiums:

Most Massachusetts insurers use private prediction models to estimate expected hurricane losses when rating and underwriting a policy.  AG Coakley noted in her letter that the insurers are not appropriately detailing how the companies are using these models, and no regulatory body has reviewed most of these models to ensure that they are suitable for use in Massachusetts.  Not only are models not being reviewed, the Commissioner is allowing the use of models that have been rejected in other states, such as Florida.  Historically, these rejected models have inflated expected losses well above actual experience.

 Massachusetts Attorney General's Press Release of November 17, 2011 concerning her letter to the Commissioner of the Massachusetts Insurance Rating Bureau, entitled "AG Coakley Urges Hearing on Excessive Homeowner Insurance Rates / Estimates Possible Overcharges of Half a Billion Dollars Due to Untested Hurricane Models".  Both of these points are made in the linked Vineyard newspaper report as well.   Parenthetically, so-called 'information asymmetry' or unbalanced access to information used in the writing of Insurance and in the handling of Insurance Claims is also a frequent subject of current commentary.  See, e.g., "Asymmetrical Information Overload" posted on Insurance Claims and Bad Faith Law Blog on November 22, 2011. 

   It is reasonable to expect an even greater increase in the use of allegedly faulty computer-generated models of catastrophe risk, along with the leverage that comes from information asymmetry.  Through the first nine months of 2011, Property and Casualty Insurance Companies in the United States experienced "catastrophe-related losses" that doubled all of the catastrophe claim payouts of 2010, or $38,600,000,000.00 ($38.6 Billion) in the first nine months of this year.  See "U.S. P/C Insurers' Catastrophe Losses Top $38 Billion" (Insurance Journal, published online on Monday, December 5, 2011).

The author of this post is also Co-Author of "CATClaims:  Insurance Coverage For Natural And Man-Made Disasters" (Thomson Reuters West).

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Health Insurance Companies Ration Health Care.

   There are those who say that the Patient Protection and Affordable Care Act, which they call "Obamacare," rations Health Care.

   This would not be a new thing.  It would only change the identity of "who" rations our Health Care.

   Before the Act takes full effect, Health Insurance Companies ration Health Care with Exclusions and Premiums, as they have always done before.  See the interview with Dr. Donald M. Berwick, outgoing Administrator of the Centers for Medicare and Medicaid, by Robert Pear, "Health Official Takes Parting Shot at 'Waste'" p. 25, col. 1 (New York Times Nat'l ed., Sunday, December 4, 2011).

   Changing the identity of "who" rations Health Care changes the calculation of rationing.  In private hands, rationing Health Care is unseen.  Each of us can judge for ourselves based on our own experience whether the effect of that method is 'good'.  In public hands, the government is required to operate with transparency, as they say.  Sometimes, perhaps always, sunlight is in fact the best disinfectant.

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

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