Claims And Issues

The return of the Munis!

               Municipal bonds are in the news again.  They took a long vacation during the Great Recession, due largely to the failures of municipal bond insurance companies which resulted from taking on credit default risk and straying from a lucrative but boring business of simply insuring municipal bonds.

               Before the Great Recession, and during the Great Recession including the present time, municipal bonds are the same as corporate bonds, only different:  Municipal bonds rarely default, unlike corporate bonds which default a lot more often.  These comparative rates of default are not reflected in the cost of their insurance policies, however, as municipal bond insurers set high rates in a niche market.  There just have not been many alternatives open to local government bodies that wish to obtain insurance to protect their bonds (and so give confidence to their bondholders).

               Now, some call into question whether the very low default rate of municipal bonds is threatened by unfunded local government pension plans.  See Tara Siegel Bernard, “Your Money / Municipal Bonds Not Really So Scary” p. B1, col. 3 (New York Times Nat’l ed., “Business Day” Section, Saturday, July 25, 2015).

               What is scary is the spectacle of municipal bond insurance companies issuing policies to cover risks unrelated to their core business.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of “Lender Force-Placed Insurance Practices” (American Bar Association 2015).  All Rights Reserved.

VIDEO DISPLAYS "LENDER FORCE-PLACED INSURANCE PRACTICES".

    Here is a no-cost, free video displaying "Lender Force-Placed Insurance Practices".  It is a Powerpoint presentation of 68 slides which the Powerpoint and YouTube software have made into an uploaded video.  YouTube added audio.  If the audio distracts you from reviewing the content of the slides, just mute it or lower the volume.

    And enjoy!

Please Read The Disclaimer.  Copyright 2015 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015).  All Rights Reserved.

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Everything Is Changing, Nothing Is New in Force-placed Insurance.

What's in a Claim? A Defense, Possibly.

Once the liability insurer admits that the policyholder faces an underlying “claim,” its duty to defend is activated if the claim is covered.¹

 

¹ In a Federal Court case in California, Millenium Labs, Inc. v. Allied World Assur. Co., No. 12cv2280-BAS (KSC), 2014 WL 6632765 (S.D. Cal. Filed November 21, 2014), a United States Magistrate Judge refused to permit the defendant to amend several responses to requests for admission to which it responded 10 months beforehand.  The liability insurance company in that case (which the Judge called “AWAC” in her opinion) had previously admitted on multiple occasions that when its policyholder was served with subpoenas by the U.S. Department of Justice, “the DOJ investigation was a ‘claim’”.  Here are the Court’s stated bases for its decision in this case, which are laid out here in numbered list form:

  

1. “Even before the complaint was filed, AWAC admitted the DOJ investigation was a ‘claim.’”  AWAC’s claim representative allegedly called the policyholder and said so.
2. Depositions of the claim rep and of the policyholder’s general counsel seemed to support this fact, “and AWAC does not deny it.”
3. “After hiring outside coverage counsel, AWAC admitted that the DOJ investigation was a ‘claim.’”  AWAC’s lawyer wrote a letter referring to one of the subpoenas as a potential “’Claim under the Policy.’”
4. At the beginning of discovery after the policyholder filed a lawsuit to obtain payment as quickly as possible of its defense costs, the policyholder served the requests for admission to which AWAC served its responses in question, admitting that the subpoenas and investigation by the DOJ were a “’claim.’”
5. Thereafter, AWAC opposed its policyholder’s motion for summary judgment, for example, by admitting that it was admitting “’only that the DOJ Investigation constitutes a Claim under the Policy.’”
6. AWAC also served requests for production on its plaintiff policyholder in that case.  In response, the policyholder “produced at least 1.1 million documents (and likely more)”.  Three months or more after the policyholder’s production, AWAC’s claim rep was deposed and referred to the DOJ subpoenas as a “’claim.’”
7. “For two years, AWAC repeatedly asserted that the DOJ investigation was a ‘claim.’  Now, for the first time, AWAC seeks to reverse its position, withdraw its admissions, and assert that the DOJ investigation was, in fact, not a ‘claim.’”

 “Accordingly, AWAC’s request to amend its RFA responses is DENIED.”

 

Reprinted with the permission of Thomson Reuters and the author from the manuscript of the author's 2015 Supplement chapters, and in particular Section 3:52, in “Litigation and Prevention of Insurer Bad Faith, 3d” ©2015 by Thomson Reuters.

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Recoupment and Reimbursement of Covered Claims Defended and Negotiated.

EVERYTHING IS CHANGING, NOTHING IS NEW IN FORCE-PLACED INSURANCE.

               For $90 Million, QBE is selling its business line of lender force-placed insurance policies which command revenue of about $400 Million a year.  See Noah Buhayar and Narayanan Somasundaram, “QBE to Sell Lender-Placed Insurance Business to National General” (Bloomberg Business Online, posted July 15, 2015)(“The deal will release more than $100 million in capital and reduce policy sales by about $400 million, the Sydney-based insurer said.”).

               True, the lender force-placed insurance (“LFPI”) business did have some recent unpleasantness over things like “kickbacks,” the article notes.  But the CEO of the acquiring company, National General, is quoted as saying that LFPI today is an “’area of great opportunity’.”  (At a purchase price of less than 25% of the first year’s revenue alone, he is almost certainly right about that.)

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of "Lender Force-Placed Insurance" (American Bar Association 2015).  All Rights Reserved.

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Why is Lender Force-Placed Insurance so Expensive?

Advance Retainer Held Not Covered Under Law Firm's E&O: Pt. 2.

The first part of this article was posted here on Monday, July 13, 2015.  This installment continues and completes this article.

           After comparing the allegations of the underlying complaint against the insured, with the provisions of the insurance policy at issue as required by Illinois law as in most jurisdictions, the trial court decided that there was no duty to defend in this matter.  As noted, the Illinois First District Court of Appeal affirmed that decision.  Illinois State Bar Ass’n Mut. Ins. Co. v. Coleman Law Firm, ¶ 24, 2014 Ill. App. (1st) 133518-U, ¶ 24, 2014 WL 7446203, at *5 (Ill. 1st DCA December 29, 2014)(stated “UNPUBLISHED OPINION”).  “Comparing the allegations of the FDIC complaint in the underlying action to the provisions of the insurance policy at hand, the factual allegations in the underlying complaint did not allege acts of negligence, but rather acts which could only be classified as intentional and, thus, excluded from policy coverage.”     Illinois State Bar Ass’n Mut. Ins. Co. v. Coleman Law Firm, ¶ 36, 2014 Ill. App. (1st) 133518-U, ¶ 36, 2014 WL 7446203, at *9 (Ill. 1st DCA December 29, 2014).  [Emphasis added.]

          As can readily be seen from the underscored words in this quoted holding, the Illinois appellate court compared the factual allegations, not simply the claims alleged in the underlying complaint, to the provisions of the insurance policy in order to determine whether the policy provided a duty to defend in this case.

 

Reprinted with the permission of Thomson Reuters and the author from the manuscript of the author's 2015 Supplement chapters, and particularly Section 3:51, in “Litigation and Prevention of Insurer Bad Faith, 3d” ©2015 by Thomson Reuters.

 

Advance Retainer Held Not Covered Under Law Firm's E&O: Pt. 1.

           In an officially unpublished opinion, Illinois’ First District Court of Appeal held that an advance retainer which a law firm required for future costs and expenses was not covered malpractice under the firm’s E&O insurance policy:  Illinois State Bar Ass’n Mut. Ins. Co. v. Coleman Law Firm, 2014 Ill. App. (1st) 133518-U, 2014 WL 7446203 (Ill. 1st DCA December 29, 2014)(stated “UNPUBLISHED OPINION”).

           In that case, the Court reported, a bank’s “inside directors” signed an “’advanced payment retainer agreement’” with the insured law firm.  The retainer agreement was stated to be “in connection with legal matters arising out of [the directors’] capacity as inside directors of the Bank.”  The amount of the advance retainer was $150,000.00.  That amount was, according to the agreement, to be paid by the Bank to the law firm “for reasonable costs and expenses incurred in connection with the matters for which the [Bank’s inside directors] had retained Coleman Law”.   Illinois State Bar Ass’n Mut. Ins. Co. v. Coleman Law Firm, ¶ 4, 2014 Ill. App. (1st) 133518-U, ¶ 4, 2014 WL 7446203, at *1 (Ill. 1st DCA December 29, 2014)(stated “UNPUBLISHED OPINION”).

          The bank went into receivership.  The FDIC was appointed receiver and sent a letter to the law firm demanding the return of the $150,000.00 paid by the bank.  The law firm refused.  The FDIC filed suit for the return of the money and the law firm tendered defense of the FDIC case to the firm’s professional liability insurance carrier.

          The carrier in turn filed an action for declaratory relief as to whether there was coverage under the malpractice insurance policy.  The Circuit Court in and for Cook County granted the carrier’s motion for summary judgment.  The First District affirmed on appeal, in the unpublished decision under discussion.

To be continued on Insurance Claims and Issues Weblog.

 

Reprinted with the permission of Thomson Reuters, and the author, from the manuscript of the author's 2015 Supplement chapters, and in particular Section 3:51, in “Litigation and Prevention of Insurer Bad Faith, 3d” ©2015 by Thomson Reuters.

Majority Holds No Negligence Cause of Action by Insured Against I.A.

   “The majority of state supreme courts to rule on the issue have determined an insured cannot bring a negligence claim against an independent insurance adjuster because an independent insurance adjuster owes the insured no duty of care.”  Tippett v. Ameriprise Insurance Co., No. 14-4710, 2015 WL 1345442, *4 (E.D. Pa. March 25, 2015)(predicting Pennsylvania law to follow ).  To the same effect:  Lodholtz v. York Risk Services Group, Inc., 778 F.3d 635, 637 (7th Cir. 2015)(predicting Indiana law).

 

Reprinted with the permission of Thomson Reuters from the manuscript of the author's 2015 Supplement chapters, and in particular Section 3:17, in “Litigation and Prevention of Insurer Bad Faith, 3d” ©2015 by Thomson Reuters.

HOMEOWNERS CAN SUE FRACKING COMPANIES FOR DAMAGES & INJURIES THEY CAUSE.

               The headline says it all:  “Oklahoma Justices Say Homeowners Can Sue Oil Companies Over Quakes,” reported by Richard A. Oppel, Jr., p. A14, col. 1 (New York Times Nat’l ed. Wed., July 1, 2015). 

               The decision was unanimous.  Richard A. Oppel, Jr., “Oklahoma Justices Say Homeowners Can Sue Oil Companies Over Quakes” p. A14, col. 1 (New York Times Nat’l ed. Wed., July 1, 2015). 

               How will fracking companies defend against damages suits when they do not have immunity?  Richard A. Oppel, Jr., “Oklahoma Justices Say Homeowners Can Sue Oil Companies Over Quakes” p. A14, col. 1 (New York Times Nat’l ed. Wed., July 1, 2015). 

               And how will fracking companies claim liability insurance coverage when they are sued for damages?

 

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of “Lender Force-Placed Insurance Practices” (American Bar Association 2015).  All rights reserved.

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Bankers and Insurance Companies Against Fracking

"Medically Necessary" to treat Eating Disorders in Missouri.

   In an Associated Press story published by The New York Times, a new statute is reported:  Missouri has apparently broken from the pack of States which deny or ignore coverage issues for eating disorders.  Under a newly enacted Missouri law, health insurance providers must cover "medically necessary" treatments for eating disorders.  "Missouri Changes Insurance Requirements for Eating Disorders" (Associated Press Copyrighted Story published in The New York Times on Monday, June 29, 2015 in the print edition; posted online on Sunday, June 28, 2015).  The new statutory language reportedly requires coverage of both physical and mental treatment of eating disorders including anorexia and bulimia.

Please Read The Disclaimer.  Copyright 2015 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015).  All Rights Reserved.  No Claim to Original Associated Press Works.